Preamble

The House met at a Quarter to Eleven o'clock

PRAYERS

A Special Prayer was said by the Acting Chaplain to the Speaker (the Reverend T. S. Nevill), as follows:
Almighty and Eternal God, Thou judge of all the earth, Who hast been our refuge from one generation to another, we humbly seek Thy blessing as we meet to commemorate the Seven Hundredth Anniversary of the Parliament of Simon de Montfort.
We praise Thy name, O Lord, for the goodly heritage bequeathed to us by those who, in bygone days, have served Thee here and for the guidance of Thy Spirit through the ages.
Especially do we thank Thee for that Thou didst inspire the minds of our Rulers in times past to call into consultation those representatives of the Shires, Cities and Boroughs of England who, in due time, were to constitute the House of Commons.
Grant that in this place truth and justice, liberty and righteousness may ever flourish and abound, and that, as we seek to know Thy Will, we may have strength and power to fulfil it to the glory of Thy Holy Name and the good of all mankind.
All this we ask for the sake of Him who is the only sure foundation of men and of nations, even Jesus Christ, Our Lord. Amen.

SEVEN HUNDREDTH ANNIVERSARY OF PARLIAMENT

Mr. Speaker: I have to acquaint the House that I have received copies of resolutions conveying messages of greeting and congratulations passed by the Parliament of Uganda, the House of Assembly of the Bahamas, the Senate and House of Assembly of Barbados, the Provincial Legislature of Ontario and the Legislative Council of St. Vincent on the 700th anniversary of the Parliament of Simon de Montfort and the 750th anniversary of the sealing of Magna Carta.
I shall have the texts placed in the Library of the House, where they can be seen by hon. Members.

Sitting suspended until 2.30 p.m.

Mr. SPEAKER and the House went to Westminster Hall to attend Her Majesty, with an Address.

Mr. SPEAKER was accompanied by the following Speakers of Commonwealth Legislatures:

The Hon. A. A. Macnaughton (Canada).
The Hon. Sir John McLeay (Australia).
The Hon. Sir Ronald Algie (New Zealand).
The Hon. Sardar Hukam Singh (India).
The Hon. Sir Albert Peries (Ceylon).
Mr. Ofori-Atta (Ghana).
The Hon. Dato'Chik Mohamed Yusuf bin Sheikh Abdul Rahman (Malaysia).
Alhaji The Hon. Ibrahim Jalo Waziri (Nigeria).
Mr. Glafkos Clerides (Cyprus).
The Hon. Banja Tejan-Sie (Sierra Leone).
The Hon. T. C. Golding (Jamaica).
The Hon. C. A. Thomasos (Trinidad and Tobago).
The Hon. Narendra Patel (Uganda).
The Hon. Humphrey Slade (Kenya).
The Hon. I. K. Surtee (Malawi).
The Hon. P. Pace (Malta).
The Hon. W. P. Nyirenda (Zambia).
The Hon. A. S. Jack (The Gambia).
The Rt. Hon. Sir Norman Stronge (Northern Ireland).
The Hon. A. R. W. Stumbles (S. Rhodesia).
The Hon. Sir John Cox (Bermuda).
The Hon. R. H. Symonette (Bahamas).
The Hon. J. E. T. Brancker (Barbados).
The Hon. H. R. Vaghjee (Mauritius).
The Hon. H. C. Kerruish (Isle of Man).
The Hon. A. P. Alleyne (British Guiana).
Dr. The Hon. F. J. Clarke (St. Lucia).
The Hon. F. J. Archibald (Grenada).
The Hon. E. F. Adams (St. Vincent).
The Hon. L. Cools-Lartigue (Dominica).
The Hon. W. H. Courtenay (British Honduras).


Mr. R. H. Le Masurier (Jersey).
The Hon. D. W. Hurst (Antigua).
The Hon. M. P. Allen (St. Christopher-Nevis-Anguilla).
The Hon. Sir Arthur Charles (Aden).
The Hon. W. Thomson (Gibraltar).
Sir William Arnold (Guernsey).
The Hon. H. Maurice Scott (Fiji).
Mr. W. P. Stanford (Basutoland).
Dr. The Hon. A. M. Merriweather (Bechuanaland).
The Hon. J. D. A. Germond (Swaziland).

The Address from the House of Commons, presented by Mr. SPEAKER, was as follows:

Most Gracious Sovereign,
We, Your Majesty's most dutiful and loyal subjects the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled, humbly beg leave to offer to Your Majesty our sincere thanks for the reference to the seven hundredth anniversary of Parliament in the Gracious Speech which Your Majesty made to both Houses at the first meeting of this present Parliament.
It is fitting that the English Parliament summoned by King Henry III at the instance of Simon de Montfort, Earl of Leicester, and Steward of England, to meet in London on 20th January, 1265, should be especially recorded. It was the first known English Parliament to which representatives of the citizens and burgesses were summoned, in addition to Prelates, Lay Magnates and Knights of the Shire. There were thus present for the first time in Parliament the chosen representatives of the Communities of England—the shires, cities and boroughs—who were in later generations to constitute the House of Commons.
We rejoice that the principles of parliamentary government have been developed and strengthened through seven centuries of history. We rejoice, moreover, that they have been established in many countries which recognise Your Majesty as Head of the Commonwealth. It is with special pleasure that we express our thanks to Your Majesty for the arrangements which have enabled us to welcome the Speakers and Presiding Officers of so many Parliaments in the Commonwealth among us on this occasion.
We humbly thank Your Majesty for this opportunity to celebrate the origin and development of this institution, the Crown in Parliament, which is the foundation of our liberties under the rule of law, and trust that with God's help it may ever be preserved.

Sitting resumed at half-past Two o'clock.

Mr. Speaker: I have to report that the House has attended Her Majesty with its Address to which Her Majesty was pleased to give a Most Gracious Answer, which I will have recorded in the Journal.

Her Majesty's Most Gracious Answer to the Addresses from both Houses was as follows:

My Lords and Members of the House of Commons: I thank you for the loyal and dutiful Addresses which on your behalf the Lord Chancellor and Mr. Speaker have presented to me.
The event, whose 700th anniversary we are celebrating today, occupies a most important and distinguished place in the history of our Country, of the Commonwealth, and of free institutions throughout the world. In the manner of constitutional developments in this country, what was at the time little more than an expedient devised from earlier practice, became first an example and then a convention. It is now memorable as the prototype of our Parliamentary system which has, itself, served as a model for many others.
Today we celebrate more than the event itself. We are here to commemorate together the long and often troubled evolution of Parliamentary processes which stemmed from that first meeting, to which, in the course of time, the customs and traditions of Scotland and Ireland have so fruitfully contributed, and which now forms a common legacy cherished by the sister nations of the Commonwealth, whose Parliamentary Representatives it gives me particular pleasure to welcome today.
It is a legacy of practice and also a legacy of intent. The evolution of our system owes much to the mixture of shrewdness and caution which prompted our predecessors throughout the centuries not hastily to devise and then to discard new forms of Government, but always where possible to adapt old forms to new needs; and to their ability to recognise the forms and precedents most suitable to that purpose.
The Parliament of 1265 has a particular significance in relation to the events of the time, but its importance to us today is that it stumbled upon and gave expression to ideas and principles which have


been recognised and maintained with growing conviction ever since.
The combination of Knights and Burgesses, strengthened and confirmed in the following century by the convention that the Knights should sit in the same House as the Burgesses and not with the greater nobility, was the growing point of our Parliamentary Institutions. They were to be fashioned and adapted during the succeeding centuries, at first with the encouragement of the Crown, later in conflict with it, and finally in happy union; but all the time expressing more surely the aspirations of the people as a whole.
No one would claim that Parliament has maintained an unblemished record in its evolution but never has it abandoned its care for the liberties of this Kingdom, as succeeding generations have conceived them. The fulfilment of those liberties has been its greatest glory. Nor can this task ever he at an end; for each generation mast still interpret and assert its liberties anew.
Whatever mistakes may have been made in these 700 years, the persistent attachment to the great guiding principles of our way of life has served again and again to evoke that idealism and spirit of self sacrifice that is interwoven in the normal sober and pragmatic character of our peoples.
This combination of idealism and pragmatism has been never more needed than today when we are called to adjust ourselves to rapid changes of world influence, to new social forces and to unprecedented advances of science and technology. We are proud to say that never has Parliament failed in these qualities. Had it been otherwise, then what happened 700 years ago would be remembered now only as a discarded constitutional curiosity, and there would be no cause to which to rededicate ourselves today.
We are glad to meet here in the Great Hall of Westminster. We do not know for certain whether the Parliament of 1265 met here or not, though it seems that the conclusions of that Parliament were proclaimed here. But this Hall has been the scene of so many events, splendid or sombre, which have marked the course of our history, that it is forever associated in men's minds with those great principles for which Parliament has consistently striven. It is from that

magnificent past, enshrined in the shadows of this Hall, that we can most surely look towards what the future may hold.

PRIVATE BUSINESS

BRITISH RAILWAYS BILL

GREATER LONDON COUNCIL (GENERAL POWERS) BILL

Lords Amendments considered and agreed to.

UNIVERSITY OF LEEDS BILL

Lords Amendment considered and agreed to.

BIRKENHEAD CORPORATION (MERSEY TUNNEL) APPROACHES BILL

Read the Third time and passed.

DEVON COUNTY COUNCIL BILL [Lords]

Read a Second time and committed.

Oral Answers to Questions — NATIONAL FINANCE

Finance Bill (Sales)

Mr. Barnett: asked the Chancellor of the Exchequer why the Finance Bill was not available for sale to the public in Manchester on Tuesday, 27th April, when it was available in London; and, in view of the importance of Manchester as a major commercial centre, if he will give an assurance that, in future, when Bills or other important documents are published, the provinces are treated no differently from London.

The Financial Secretary to the Treasury (Mr. Niall MacDermot): I would refer the hon. Member to the Answer I gave on 3rd May to the hon. Member for Glasgow, Shettleston (Sir M. Galpern).

Mr. Barnett: Is my hon. Friend aware that there are many people in Manchester and district who are just about fed up with being treated as a second-class area compared with London—indeed, this applies to the provinces generally—and is it not time in this scientific age that the provinces were treated at least as fairly as London itself?

Mr. MacDermot: There is no desire to distinguish between the Metropolis and


the provinces in this matter, but there are real practical difficulties both of Parliamentary Privilege and of the need for security. However, I am looking into this and doing all I can to eliminate as far as possible any gap between the time of publication in London and publication elsewhere. In most cases the gap is eliminated completely, but I am seeing what can be done in the other cases.

Mr. Milne: Will the Minister bear in mind the needs of Newcastle-upon-Tyne and district in this matter and look at the possibility of opening a retail sales office of Her Majesty's Stationery Office in this area?

Mr. MacDermot: That is a separate Question.

Mr. William Clark: Would not the Financial Secretary agree that one of the main reasons for delay is that the Government keep putting down Amendments at such a substantially late hour?

Mr. MacDermot: It has nothing to do with Amendments. What we are dealing with here is publication of the Bill itself. I am sure that hon. Members on both sides of the House will realise the security considerations involved in the publication of a Finance Bill.

Mr. Wingfield Digby: asked the Chancellor of the Exchequer why the Stationery Office charge for a copy of the Finance Bill is 14s. for 226 pages, compared with 6s. for 104 pages in 1963 and 2s. 6d. for 39 pages in 1964; and to what extent this increase is due to higher costs and to higher profits, respectively.

Mr. MacDermot: Bills and other Parliamentary papers are priced to cover costs without making a profit. The 1965 Finance Bill costs more than those of 1963 and 1964 because it is longer and printing costs have gone up; but the price per page is lower than 1964.

Mr. Digby: While recognising that it would be ridiculous to expect the price of anything to go down under the present Administration, may I ask the hon. and learned Gentleman whether he is aware that this is negligible compared with the ultimate harm which the Bill is likely to do to the country?

Mr. MacDermot: The hon. Member has not understood. The cost per page

has gone down. This is an interesting example of the economies of scale.

Mr. Kenneth Lewis: Has the hon. and learned Gentleman calculated how much the Treasury could recoup if he collected together all the old copies of the Bill and of the Amendments which have been printed and sold them for salvage?

Mr. MacDermot: Another interesting fact is that this Bill has proved a best seller and that, despite our intention not to make profits, it looks as if we are going to make quite a bit.

Duties and Taxes (Increased Revenue)

Mr. McMaster: asked the Chancellor of the Exchequer how much extra revenue he expects to receive in each of the next three financial years as a result of the increases in duties and taxes introduced in this year's Finance Bill.

The Chancellor of the Exchequer (Mr. James Callaghan): At current levels of income and expenditure the yield of the measures in the Finance Bill is estimated at£164 million in 1965–66, and about£220 million in 1966–67 and£250 million in 1967–68.

Mr. McMaster: Can the right hon. Gentleman say what proportion of this extra revenue will be wasted in accordance with decisions taken by this Government since last October, and likely to be taken in the next few years, in ordering aircraft from abroad and ships from foreign yards?

Mr. Callaghan: I am glad to say that a large part of the extra revenue has been devoted to an increase in the old-age pension. As to future orders of aircraft, they will not enter into either the balance of payments or budgetary considerations for some time to come.

Mr. Peter Walker: The Chancellor will be aware that we have information as to the amount of Capital Gains Tax to be derived from individuals. Can the right hon. Gentleman give us the amount of tax which will be coming from companies via the medium of the Corporation Tax?

Mr. Callaghan: Not at the moment, but the total yield in 1966–67 will be some£10 million and in 1967–68£25 million.

Mr. McMaster: I wish to give notice that, in view of the unsatisfactory nature of the reply, I propose to raise the matter on the Adjournment at the earliest possible moment.

Overseas Expenditure

Mr. Wingfield Digby: asked the Chancellor of the Exchequer, in view of his policy of curtailing overseas investment and spending, what is the policy of Her Majesty's Government with regard to the reduction of its expenditure overseas.

Mr. Callaghan: The Government's policy is to reduce the outflow of capital from this country in order to get the balance of payments right. So far as Government overseas expenditure is concerned, the policy is to reduce it where-ever possible.

Mr. Digby: Does not the Chancellor think that the time has come for deeds, not words? The Government are constantly exhorting other people to do these things, but all that we are told by Ministers is about endless reviews by Her Majesty's Government.

Mr. Callaghan: If the previous Administration had not allowed military and other expenditures to rise so rapidly, I would not now be in the difficulty of cutting them down.

Mr. Ridsdale: Will the right hon. Gentleman say how much expenditure overseas will increase since the statement yesterday on overseas development?

Mr. Callaghan: Yes. The Answer was given yesterday. It is about£31 million for the United Nations. As far as interest-free loans instead of a waiver of interest are concerned, they will cost nothing.

Sir C. Osborne: Why does not the Chancellor take the advice of the Governor of the Bank of England and cut expenditure as the only way in which to get our balances right?

Mr. Callaghan: The hon. Gentleman seems to be emulating Rip van Winkle. The whole purpose of the Government exercise on overseas expenditure is to try to cut it down.

Shillings (Minting)

Mr. Gresham Cooke: asked the Chancellor of the Exchequer if he will

direct the Royal Mint to double the number of shillings minted, and to make that fact well known so that the shilling may become a unit of currency once again in common use like the sixpence.

Mr. MacDermot: Twenty-four million shillings were issued in the first quarter of 1965, compared with30 million in the whole of 1964.

Mr. Gresham Cooke: Is the hon. Gentleman aware that for about seven months in the year all the shillings seem to be tied up in gas, electricity and parking meters, and so on, and that if he looks in his pocket in the winter he will never find a shilling? Therefore, would the hon. Gentleman advise that during the winter period more shillings should be made available?

Mr. MacDermot: All I can say is that the hon. Gentleman has a better chance of finding a shilling in his pocket now than he had under the previous Government.

Mr. Costain: Is the Financial Secretary aware that although he may find a shilling in his pocket it is now worth a great deal less than it was?

Inland Revenue (Assessment Branch Staff)

Mr. Tilney: asked the Chancellor of the Exchequer how many personnel are in the assessment branch of the Inland Revenue; and how many he anticipates will be required next year.

Mr. MacDermot: On 1st April, 1965, the staff of the branch concerned with the assessment of Income Tax and Profits Tax numbered 37,208. It is too early to make a reliable estimate of the number needed next year.

Mr. Tilney: Is the Financial Secretary aware that the complications of the Finance Bill are likely to increase the correspondence of the Inland Revenue? Does he anticipate greater delays in getting agreement of assessments, and is he now in any difficulty concerning recruitment to the Inland Revenue?

Mr. MacDermot: I think that the Inland Revenue staff are well up to date with their work. There will, of course, be a considerable burden thrown upon them, particularly in the initial stages,


as a result of the changes made in the Finance Bill, but additional staff are being recruited.

Captain Orr: Has the hon. Gentleman not made any guess as to how many more staff he may require?

Mr. MacDermot: I do not think that it would help the House if I gave it guesses.

National Insurance Contributions

Mr. Sheldon: asked the Chancellor of the Exchequer if he will investigate the use of National Insurance contributions as a means of regulating the economy both regionally and nationally.

Mr. Callaghan: I will bear my hon. Friend's suggestion in mind, although he will recognise the difficulty of making contributions vary, especially on a regional basis.

Mr. Sheldon: Would my right hon. Friend not agree that one of the main difficulties that he has in controlling the economy is the time lag between the decisions which he takes and the effects produced? Would he not also agree that this investigation would be well worth while and will he say what steps are being taken to meet this point and how he intends to reduce the time lag between the decision and the effect?

Mr. Callaghan: That would not be wholly true of some of the measures of indirect taxation. This is not a question that I rule out. There is a review of the social services coming up; and although this facet of it would not be a major part of the review, I think it worth bearing in mind. But I would say to my hon. Friend that there are practical formidable difficulties in the matter.

Mr. Ioan Evans: Has my right hon. Friend considered the proposal that the National Insurance contribution should be varied according to income? Is he aware that the contribution bears heavily on the lower income group?

Mr. Callaghan: Yes, Sir, but I think that that is another Question.

Defence Expenditure (East of Suez)

Mr. Barnett: asked the Chancellor of the Exchequer, in framing Her Majesty's Government's financial policy,

what consideration he is giving to the financial implications of defence expenditure east of Suez.

Mr. Callaghan: The current review of our defence commitments, including those east of Suez, will take full account of the needs of the economic situation.

Mr. Barnett: I am aware of the defence review, but would not my right hon. Friend agree that it is not enough simply to make small cuts by way of cost efficiency and that what is needed is cuts in our commitments? Will he make representations to his right hon. Friends particularly about cutting the commitments of our defence rôle east of Suez?

Mr. Callaghan: I think that it would be wrong—and this is in part an answer to questions which were asked earlier—to make forecasts about cuts in commitments until a very thorough examination of the whole position has been undertaken. It is for that reason that it is simply not possible to make swift, slashing cuts in overseas expenditure.

Mr. Royle: When will the right hon. Gentleman be able to tell the House that the review is concluded? How long have we to wait?

Mr. Callaghan: That is a matter for my right hon. Friend the Secretary of State for Defence, but I certainly hope that it will be the autumn.

Public Service and Armed Forces (Pensions)

Mr. Mitchell: asked the Chancellor of the Exchequer what progress has been made in carrying out the review of public service and Armed Forces pensions; and how soon he expects to make an announcement.

Mr. MacDermot: I have nothing to add to the reply which I gave to the hon. Member for Brighton, Kemptown (Mr. Hobden) on 14th June.

Mr. Mitchell: Is the hon. and learned Gentleman aware that when the Prime Minister was seeking votes at the time of the election he gave a pledge that public service and Armed Forces pensions would keep their full purchasing power? Is he aware that the cost of living has already gone up 4 per cent. under the present Government and that if he does


not do something soon the very severe hardship already occurring for these people will get quite out of hand?

Mr. MacDermot: The hon. Member will be aware that complicated questions are involved here. All are being considered. Meanwhile we tackled first things first by giving an immediate substantial increase through the National Insurance pension which benefits the vast majority of public service pensioners.

Mr. Ridsdale: Can the hon. and learned Gentleman say when are we likely to get the next Pensions (Increase) Bill?

Mr. MacDermot: No, Sir, I cannot give any date.

Mr. Scott-Hopkins: Is the hon. and learned Gentleman aware of the considerable hardship caused to some of these Service pensioners and will he be less callous in his answers and more sympathetic to their needs?

Mr. MacDermot: I am not callous. I am sympathetic. I am aware of their problems and particularly of the problems of those who are not covered by the National Insurance pensions increase.

Exchange Control Regulations

Mr. Kimball: asked the Chancellor of the Exchequer what prior consultations he had with other countries in the sterling area and the Commonwealth before instructing the Bank of England to issue the new exchange control regulations on 7th April; and what subsequent communications on this subject he has received from them.

Mr. Callaghan: In accordance with normal practice the other countries in the sterling area and the Commonwealth were informed immediately the changes which I announced in the Budget were made in United Kingdom exchange control. It has never been the practice to consult them in advance.
I have had no communications from the Governments concerned. There has been correspondence between the Treasury and Bank of England and some of the exchange control authorities concerned in regard to details of the arrangements.

Mr. Kimball: Is the Chancellor of the Exchequer aware that these ill-conceived regulations may well force Bermuda and the Bahamas to leave the sterling area? Would he be prepared to give an estimate of the effect on our sterling balance if they left?

Mr. Callaghan: If any area was exempted this would enable United Kingdom residents to use nominees in that area for their investments and thus evade the new rules. As the rules are already beginning to add to the strength of our resources, I hope that the hon. Member will not press me to take any steps which would weaken them.

Mr. Biggs-Davison: Will the right hon. Gentleman consider associating other Commonwealth sterling area countries with the management of the sterling area? Should not they be more closely associated in these days?

Mr. Callaghan: There is frequent contact between the central banks in the other parts of the sterling area and the Bank of England, as there is between myself and the Commonwealth Finance Ministers at regular intervals.

Investment Allowances

Mr. Sheldon: asked the Chancellor of the Exchequer if he will introduce legislation to replace investment allowances by discriminatory investment grants.

Mr. Callaghan: My hon. Friend's suggestion will be considered in the current review of investment allowances announced in my Budget speech.

Mr. Sheldon: Is the Chancellor of the Exchequer aware that the relationship between investment and investment allowances is at best a most haphazard one? Will he tell us when he expects the revision to be complete and whether that will include investment grants or allowances which will be more discriminating in their effect, more widely understood and more immediate in their application?

Mr. Callaghan: I was very impressed by my hon. Friend's speech on Tuesday on Clause 52 of the Finance Bill. I accept what he said then and repeat it now. We are getting on with the review and we will take all considerations into


account in seeing whether we can proceed with a new system.

Mr. Gresham Cooke: How is the discussion with the Minister of Technology getting on following the review of the machine tool industry? If we are likely to have the setback referred to in Question No. 11, in the name of my hon. Friend the Member for Louth (Sir C. Osborne), is not it important to get the new capital allowances in being by October if possible?

Mr. Callaghan: My relations with my right hon. Friend the Minister of Technology are, as always, cordial and I assure the hon. Member that we are working in full co-operation on this matter.

Mr. Higgins: Does the Chancellor agree with the statement made by the Chief Secretary that the effect of Corporation Tax will be approximately to double the incentive for firms to invest in development districts?

Mr. Callaghan: I never find it necessary to disagree with my right hon. Friend.

Balance of Payments

Sir C. Osborne: asked the Chancellor of the Exchequer, in view of the fact that the industrial investment boom may ease off by the end of the year, what new steps are being taken to meet the economic setback which will result; and if he will make a statement.

Mr. Callaghan: I explained in my Budget speech the need to make room in the economy for the progressive improvement in the balance of payments which is our overriding immediate objective. The measures I have taken can of course be modified at any time, one way or the other, by adjustment of fiscal and monetary policy.

Sir C. Osborne: If the improvement in our position is satisfactory to the Chancellor of the Exchequer, which we all hope it will be, why is he going to America to try to borrow a further 2 billion dollars to help stabilise sterling this autumn? Is such a large extra loan necessary if our position is improving?

Mr. Callaghan: The hon. Member is a very useful means of denying this

foolish rumour for which he has no authority. I am going to Washington, as has already been announced, to discuss further progress with international liquidity. That was the original purpose of the visit, and it is still the main purpose of the visit.

Mr. Lipton: Do not the constant moanings of the hon. Member for Louth (Sir C. Osborne) exercise a depressing effect on our foreign balance of trade?

Mr. Speaker: I am inclined to think that that must be a matter of opinion.

Inland Revenue Offices (Opening Hours)

Mr. Ioan L. Evans: asked the Chancellor of the Exchequer if he will arrange for Inland Revenue offices to remain open outside normal working hours on certain days of the week in order that inquiries may be made without forfeiting working time.

Mr. MacDermot: No, Sir; but interviews can be arranged by appointment outside the hours when offices are open to the public.

International Liquidity

Mr. Hordern: asked the Chancellor of the Exchequer what proposals he intends to put forward for improving international liquidity at the International Monetary Fund meeting next September.

Mr. Bruce-Gardyne: asked the Chancellor of the Exchequer what was the outcome of his discussions with the French Minister of Finance about international liquidity.

Mr. Walters: asked the Chancellor of the Exchequer what talks he has held with the French Government on problems of world liquidity; and what has been their outcome.

Mr. Callaghan: I had a useful exchange of views with the French Finance Minister last week, and international discussions continue in the Group of Ten and the International Monetary Fund. Progress can only be made by agreement, and I hope to continue discussions with the United States Secretary to the Treasury next week.

Mr. Hordern: Will the right hon. Gentleman see that on his forthcoming


visit to Washington this matter has first priority and is not a subject which will be put rather low down on the agenda? Will he see whether it is possible to work out some form of joint agreement with the Americans on this problem as a joint approach?

Mr. Callaghan: I hoped that I had already made it clear, and I make it clear again, that this is the main subject of discussion next week and is a follow-up of discussions which we have already had. But I emphasise that there is not a lot of point in two or three nations agreeing on what they would like to do. There must be a unanimous move forward if there is to be an increase in liquidity or a reconstruction of the world monetary system. This is why my purpose is not to take up a fixed position or to put forward a grand new plan, of which there are at least a dozen in existence, but to try and see whether the various different elements which exist at present can be brought together and synthesised.

Mr. Walters: I welcome the Chancellor's talks with the French Finance Minister but may one assume that, in his forthcoming talks in Washington, he will tend to support the French position?

Mr. Callaghan: No, Sir; it would be wrong for me to say that. The principle upon which this country has acted is one which I would propose to continue, namely, to build upon the International Monetary Fund in the first place. That is where we should start from.

Mr. Heath: When the Chancellor returns from Washington, will he take an early opportunity to inform the House, either by statement or by White Paper, exactly where the Government themselves stand after this series of meetings on the question of arrangements for international liquidity? Does the Chancellor realise that there is a Bill at present before the House which is very much concerned with these matters and which remains to be debated, but it will not be possible for the House to debate it adequately unless we have much more knowledge about the Government's own position?

Mr. Callaghan: I shall consider that. It is no use publishing a White Paper unless there is a good deal to say, but I shall certainly consider either making

a statement or in some other way indicating the position reached in international discussions as well as Her Majesty's Government's own position.

Mr. Sheldon: While accepting that unanimity is certainly the most desirable goal to attain, will my right hon. Friend not agree that, in the event of failure to reach such unanimity, encouragement of a large number of bilateral swap arrangements could be second or third best?

Mr. Callaghan: Bilateral swap arrangements have had a very useful part to play, but I want to see arrangements for increasing liquidity put upon a more permanent basis, if that is possible.

Travel Agents

Mr. Milne: asked the Chancellor of the Exchequer what claims against Income Tax can be made by travel agents or tour operators who fly holidaymakers to their destinations free of charge and only require payment for hotel accommodation.

Mr. MacDermot: Travel agents and tour operators are chargeable to Income Tax according to the normal rules and are entitled to allowances, reliefs and deductions on the same basis as other traders.

Mr. Milne: Is my hon. and learned Friend aware that many holidaymakers recently let down by a leading tour operator have been told by this tour operator that they have no redress on the question of delay in air travel because of Income Tax concessions which have been given to it by the Treasury?

Mr. MacDermot: I am quite unaware of that. If my hon. Friend will give me details, I shall be glad to look into it. I do not see how there can be any basis for such a statement.

Public Servants (Union Contributions)

Mr. Fletcher-Cooke: asked the Chancellor of the Exchequer why he has decided to allow Government Departments to deduct the trade union dues of public servants from their salaries or wages.

Mr. Braine: asked the Chancellor of the Exchequer what instructions have been given to Government Departments about the deduction of union contributions from wages and salaries; and whether this includes deductions designed for political purposes.

Mr. MacDermot: This facility is increasingly being given by outside employers in the interests of good staff relations. My right hon. Friend saw no reason to refuse the national staff side when it asked for it. For those associations which have a political fund, arrangements are being made to ensure that Departments shall not know the numbers or identities of members contributing to the political levy. No instructions have yet been sent to Departments because the detailed operation of the scheme has not yet been settled with the staff side.

Mr. Fletcher-Cooke: Is it not wrong for Her Majesty's Government to act as the collecting agency of a trade union in this way, and it is not wrong for them to set a bad example to private industry, increasing the scope of the American practice of the check-off which is widely discredited?

Mr. MacDermot: I do not see anything wrong in a procedure which saves time and increases efficiency. Its virtues are being recognised increasingly by the private sector of industry and by public authority employers. We are not setting an example here; we are following a lead given by others.

Mr. Randall: Can my hon. and learned Friend confirm that this practice, by which civil servants have their trade union contributions deducted from pay by the Government, was adopted during wartime? If it was, what is wrong with it being done in peace-time?

Mr. MacDermot: My hon. Friend has a great deal more knowledge than I have of what the practice in these matters was during the war, but I entirely agree with him in seeing nothing wrong in this and everything to be said for it.

Mr. Heath: If there is a difference between the dues collected from different individuals because of their contributions to the political levy, depending upon whether they contribute or not, how can the Minister in those circumstances pre-

vent those in the Department who handle these matters knowing exactly who is paying and who is not?

Mr. MacDermot: I am happy to explain that. There will not be a difference in the amount of the deduction. Where there is a political contribution or political levy made, the same amount will be deducted from everyone but the arrangement come to is that the associations will be required to pay the political element in that deduction in advance to their contracted-out members who join the scheme. It will be an entirely voluntary scheme. No one will be compelled to suffer deduction unless he wants to. But the associations will, as it were, repay in advance the amount of the political levy to those who have contracted out. In this way no one will be put out of funds at all and the Department will not be in a position to know who has contracted out and who has not.

Mr. Heffer: Does my hon. and learned Friend agree that there are many different amounts and levies in trade union contributions and it would, therefore, be rather difficult for any Government Department to know precisely what was for the political levy and what was not? Second, has he noted that, although this practice is now widespread in private enterprise, we have never heard any cry from the benches opposite on that account?

Mr. MacDermot: I entirely agree with my hon. Friend's second point. As I have explained, the steps we have taken will ensure that there is no means by which Departments can know whether or not members have contracted out.

Finance Bill (Booklets)

Mr. Shinwell: asked the Chancellor of the Exchequer if, following the passage of the Finance Bill, he will publish a booklet explaining to taxpayers their obligations.

Mr. Callaghan: The Board of Inland Revenue will issue explanatory booklets on the taxation of capital gains and on the Corporation Tax.

Mr. Shinwell: I am obliged to my right hon. Friend for that reply and I look forward to this publication. Will he ensure that hon. and right hon. Members


opposite have a copy, even if it is provided free, so that they may be fully acquainted in particular with the Amendments which they have put down and which my right hon. Friend has agreed to?

Mr. Callaghan: I should like to consider that, although, in the interests of economy, it would perhaps be better to send copies of the booklet to a large number of the companies which may have been misled by some of the propaganda which the party opposite has put out.

Sir H. Harrison: In preparing this booklet, will the Chancellor of the Exchequer consult leading members of the Opposition Front Bench so that something sensible and clear can be written?

Mr. Callaghan: I am glad to say that I have received considerable help from the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), who issued a corresponding booklet after the enactment of the short-term Capital Gains Tax.

Mr. Heath: Does the Chancellor realise that the country and industry in particular thoroughly agree with what his hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) said, that if there are any misunderstandings about this Finance Bill in industry and financial circles, the Government have only themselves to blame?

Mr. Callaghan: My hon. Friend has made so many speeches that I never know whether I am to listen to the ones in which he praises me or those in which he attacks me.

Taxpayers (Inquiry Costs)

Mr. Shepherd: asked the Chancellor of the Exchequer why, when an inquiry is made into the Income Tax affairs of a taxpayer and nothing is found to be out of order, the taxpayer is called upon to pay the costs of the inquiry.

Mr. MacDermot: The Inland Revenue neither claims nor reimburses expenses relating to inquiries. I do not think that such expenses should be treated differently from other expenses connected with tax affairs.

Mr. Shepherd: Is it not an offence against the sense of natural justice that,

when an inquiry is forced upon a taxpayer and no cause for complaint is found, he should be charged with the expenses? Ought they not to be borne by the Department?

Mr. MacDermot: It does not always follow, if an inquiry proves abortive, that the Revenue was not justified in taking it up. But the real point involved here is that, if the taxpayer is to claim where the inquiries prove abortive, the corollary of that, presumably, is that the Revenue should claim where they prove to have been justified. I think that it is better to follow the example laid down in our law in regard to proceedings before the Income Tax Commissioners who have no power to award costs. This question was considered by the Royal Commission, which recommended against any award of costs being made.

Mr. Shepherd: Is it not clear that if the Inland Revenue has to bear no part of the cost whether the inquiry is abortive or not, it will he inclined to institute an order and enforce inquiries where there is only a marginal case to answer? Is it not desirable that the Inland Revenue should recover its costs where it is proved to be correct and should fail to charge people where they are found to be blameless?

Mr. MacDermot: It is not right to say that the Inland Revenue bears no part of the costs. It bears its own costs. It has far too much to do to enter lightheartedly upon frivolous investigations.

Mr. Shinwell: Will my hon. and learned Friend look into the matter again? After all, if the Inland Revenue discovers that it has made a justifiable claim, the Exchequer receives additional revenue. So what has it to complain about? On the other hand, if the inquiry is abortive and it is demonstrated that the person concerned has not been guilty in any way, why should he be mulcted of costs?

Mr. MacDermot: When the Inland Revenue receives revenue, it does not receive any additional sum related to the costs of the inquiry which may have been rendered necessary. But if my right hon. Friend or the hon. Member for Cheadle (Mr. Shepherd) have specific cases that they would like to bring to


my attention for me to look into, I should be glad to do so. I have stated the principle. I cannot see any justification for changing it, but should be glad to reconsider the matter in the light of particular cases.

Sir Robert Cary: If it be true that the investigation should never have been undertaken, is it not only fair to the individual citizen that he should be released from any costs?

Mr. MacDermot: The point that I made originally was precisely that—which I think anyone familiar with legal matters would certainly agree with—the fact that an investigation does not result in a claim for tax does not mean that it was not rightly undertaken.

Mr. William Clark: Would not the hon. and learned Gentleman go halfway in the matter? Under Schedule D, if there is an inquiry the cost of it to the taxpayer can be set against profits. This is not the case with Schedule E. Would the hon. and learned Gentleman look at it in this sense and go halfway and allow the costs of an inquiry to be set off against the Schedule E assessment?

Mr. MacDermot: I should certainly like to look into that.

Building Societies (Investment Limit)

Mr. Peter Walker: asked the Chancellor of the Exchequer whether, in view of the increasing demand for mortgages, he will now lift the£5,000 limit imposed upon the sums that can be invested in building societies on normal terms.

Mr. Callaghan: The initiative for making such a change would normally come from the Building Societies Association. No approach has been received.

Mr. Walker: As this limit has been applied now for some decades, if an approach is made in the future will the right hon. Gentleman look at it sympathetically?

Mr. Callaghan: Yes, Sir, certainly; but I think that a number of individuals invest in more than one society, and, therefore, the limit is not as real as it might seem.

Mr. Fisher: Would not the right hon. Gentleman agree that in present circum-

stances, where the demand for funds for home lending far exceeds the supply of money available, it is rather unrealistic to fix a rather low limit of this kind, particularly in view of the depreciation in the value of money since it was fixed? Would not£7,500 or£10,000 be more realistic?

Mr. Callaghan: I am sure that the Building Societies Association will note the hon. Gentleman's question. I should be happy to receive an approach, although I could not indicate now what the answer would be. However, I should be glad to look at anything which is put to me.

Decimal Currency

Mr. Lubbock: asked the Chancellor of the Exchequer if, in view of Her Majesty's Government's commitment to the introduction of metric weights and measures, he will now introduce legislation providing for decimal currency at the earliest possible date.

Mr. MacDermot: My right hon. Friend has this matter under active consideration but he is not yet ready to make a statement.

Mr. Lubbock: Has not the right hon. and learned Gentleman had the matter under consideration for quite some time? Does he recall that on 9th March the Chancellor said in reply to a similar Question that the Government should make up their mind? What is the reason for this inordinate delay if the Government really meant what they said about modernisation at the time of the election?

Mr. MacDermot: I do not agree that the delay is inordinate. This is one of many matters that we have to consider, and it is a complicated matter. It is being considered.

Sir G. Nicholson: Is it not a fact that up to the present the country as a whole has not shown itself prepared to accept the new system and that it is only the eggheads who favour it?

Mr. MacDermot: One of the difficulties is that even the eggheads are not agreed on how it should be done.

Mr. Maxwell: Would my hon. and learned Friend bear in mind that industry is very much in favour of it, that it


would help our exports, and that it is a matter of urgency that the Government should make up their mind and tell the country what their decision is?

Mr. MacDermot: I remember my hon. Friend's interest in the subject the last time it was raised.

Civil Servants (Salaries)

Mr. Edward M. Taylor: asked the Chancellor of the Exchequer whether he will make provision for an increase, to take account only of the cost of living, in the salaries of civil servants receiving mark-time salaries following their transfer to lower graded positions in consequence of redundancy agreements; whether he is aware that certain existing agreements involve considerable hardship on the part of the older civil servants so affected; and if he will make a statement.

Mr. MacDermot: No, Sir.

Mr. Taylor: In view of the rather unsatisfactory answer to the Question, is the hon. and learned Gentleman aware that, under the arrangements negotiated with the Treasury, in Departments where there is reorganisation and consequent redundancy and down-grading, some people are in the position that they will get no increase whatsoever to take account of the increased cost of living for many years? Will he note that one particular case that I have in mind is that of a gentleman who was formerly in a grade receiving£1,426 per annum and is retaining that amount on a personal basis but is now in a grade with a maximum of£900, which means that he will have no increase for many years?

Mr. Cyril Bence: Write a letter!

Mr. MacDermot: I am sure that the hon. Gentleman does not want to lose sight of the basic principle that an employee in a given job should have the rate for the job. What he is referring to is a special concession in order to avoid an actual drop in take-home pay for someone who has been transferred to other employment at a lower rate. This enables him to retain his former rate. One has also to bear in mind the person's position in relation to someone who has served throughout in the grade concerned.

Mr. J. T. Price: Would not my hon. and learned Friend agree that salary and wage matters should be adjusted through the established trade union machinery and not the Order Paper of the House of Commons?

Mr. Younger: Would not the hon. and learned Gentleman agree that when the mark-time salaries were originally introduced into the system it was not envisaged that anybody would be on them for more than two or three years? Is he aware that in present conditions there are people who are having to face being on them for eight to ten years, and that is a long time to go without any increase when the cost of living is going up?

Mr. MacDermot: I think that the position of such people in their new job must be considered in relation to the people who have been in that job possibly for an equivalent period.

Company Chairmen (Statements)

Mr. William Hamilton: asked the Chancellor of the Exchequer whether, under his regulations and the practice of the Revenue, the cost of newspaper advertisements of the texts of speeches of chairmen of public companies can be set off against the companies' Income and Profits Tax, even where a large proportion of the speech may be concerned to make political propaganda.

Mr. MacDermot: Reprinting statements by company chairmen at annual general meetings is an accepted form of advertising, and the cost is generally admissible as a business expense for tax purposes. Reflections on Government policies are a not unusual feature of such statements. I do not think the public in general find it difficult to see them in their proper perspective.

Mr. Hamilton: Does my hon. and learned Friend recognise that, while that may well be so, it is no defence and no argument for allowing it for Income Tax and Profits Tax purposes? Did he read carefully the example which I sent to the Department, and does he recognise that there is an increasing tendency for chairmen of companies to engage in political propaganda and charge it against their tax assessments? Will he take steps at


least to judge each case on its merits, and if there is political propaganda, ensure that it is not chargeable against tax?

Mr. MacDermot: Yes, Sir; I read the statement concerned. I also noticed that, in spite of the somewhat gloomy statements by the chairman of the company, he found time to tell his shareholders that in the first quarter of this year the results of the company's efforts had been, I think, 17·5 per cent. better than during the equivalent period last year.

Mr. Heath: Is the Financial Secretary correct in standing up to his hon. Friend and defending the right of his former supporter, the chairman of Booker Bros., to attack the Government when he can no longer support them?

Mr. MacDermot: I am grateful to the right hon. Gentleman for again giving me an opportunity to bring to the attention of the public what the Press chose not to do, namely, the additional statement made by the chairman that the concessions which had been added to the Order Paper by my right hon. Friend had met his points.

Mr. Shinwell: Surely it would not tax the ingenuity of the Inland Revenue to eliminate that part of a company report critical of the Government, making it not deductible?

The Mint

Mr. Bence: asked the Chancellor of the Exchequer what consideration has been given to the transfer of the Mint from London to Scotland, as part of the policy of redistribution of industry.

Mr. MacDermot: The question of altering the location of the Mint is closely bound up with that of decimalisation which is now under active consideration.

Mr. Bence: My hon. and learned Friend referred to "decimalisation", which has confused me a little. Would not he consider that in the redistribution of enterprises and the diversification of industry in Scotland the removal of the Mint from London to Scotland would be a gesture that would be appreciated there? It is the sort of industry and enterprise—manufacturing money—thatwe could well do with in Scotland.

Mr. MacDermot: My hon. Friend asked first whether the Mint could be removed from London. It is here that the question of decimalisation is relevant because additional coinage facilities would certainly be required if decimalisation were introduced. If the question does arise of moving the Mint out of London then, of course, the demands of Scotland, like those of other parts of the country, will be carefully considered.

Mr. Gresham Cooke: Would we get more shillings if the Mint were moved to Scotland?

Mr. MacDermot: The hon. Gentleman is insatiable. However, the longer the Government remain in power the greater chance of his finding more and more shillings in his pocket.

Mr. Emrys Hughes: In view of the number of daring robberies in London—including one within half a mile of this place—would it not be safer to put the Mint in Scotland?

Government Expenditure

Mr. Bence: asked the Chancellor of the Exchequer what annual increase has taken place in Government expenditure since 1951; and what increase in revenue from Purchase Tax, Income Tax, and company taxation has taken place over the same period.

Mr. Callaghan: Between 1951–52 and 1964–65 the average annual increase in Supply expenditure was£228 million, or 4·8 per cent.; the average annual increase in revenue from the taxes referred to by my hon. Friend was£143 million or 4·4 per cent. I will with permission circulate in the OFFICIAL REPORT a table giving more detailed information.

Mr. Bence: I thank my right hon. Friend for that reply, but does it not seem to indicate that in the past 13 years the increased revenue collected because of increased Government expenditure has been imposed more and more, relatively, on the lower income groups and on individuals rather than upon companies? Will he immediately convey to the people that the Finance Bill is a Measure to try to redress the balance and that the Opposition are trying to keep heavy taxation on individuals and to relieve companies?

Mr. Callaghan: We must keep a balance between securing a proper contribution by companies to the national Revenue and not impairing their commercial efficiency. But my hon. Friend will see from the table that whereas the percent-

GOVERNMENT (SUPPLY) EXPENDITURE AND CERTAIN CATEGORIES OF REVENUE, 1951–52 AND 1964–65



£ million at prices of the year
Percentage increase/decrease
£ million at prices of the year
Average percentage increase/decrease per year



1951–52
1964–65
Increase/decrease
Average increase/decrease per year


Supply expenditure
3,513
6,480
2,967
84
228
4·8


Revenue:



Purchase tax
338
633
295
87
23
4·9


Income tax on persons and unincorporated enterprise (including surtax)
1,230
2,821
1,591
129
122
6·6


Company taxation*
898†
875†
—23
-3
-2
-0·2



2,466
4,329
1,863
76
143
4·4


* Includes profits tax, excess profits tax and excess profits levy, together with income tax paid by companies.


† Includes tax paid by public corporations amounting to approximately£5 million in each year.

Estate Duties

Mr. Crawshaw: asked the Chancellor of the Exchequer how many estates have been accepted by the Treasury during the past five years in lieu of death duties; and what was their value.

Mr. MacDermot: Fourteen estates valued at£416,261 were accepted by the Treasury in satisfaction of Estate Duty during the five years ended 31st March, 1965.

Mr. Crawshaw: I thank my hon. and learned Friend for those figures. Do not they indicate a certain reluctance on the part of his Department to accept land in lieu of death duties? Can he assure us that no opportunity is lost to acquire land which will give the public greater means of access to areas of natural beauty?

Mr. MacDermot: There is no reluctance involved. We are dependent on the number of estates offered. A few offers have been rejected because the property concerned did not appear to

age of increased revenue from Income Tax and Surtax on persons has gone up by 129 per cent. in that period the percentage decrease in company taxation has been 3 per cent.

Following is the table:

have sufficient amenity value. Subject to considerations of that sort, there is no reluctance to accept property.

Mr. Deedes: What proportion has been paid out by the National Land Fund? Is the hon. and learned Gentleman satisfied that the Fund is being used according to the intention of the late Lord Dalton?

Mr. MacDermot: There is not a proportion. In every case the amount of Estate Duty is refunded to the Inland Revenue from the Land Fund.

Industrial Production

Mr. Gresham Cooke: asked the Chancellor of the Exchequer what has been the fall in productivity during recent months while the index of industrial production has remained static.

Mr. Callaghan: The index of industrial production has not remained static. It rose by 2 per cent. between the third and fourth quarters of 1964 and by a further 1 per cent. in the first four months


of 1965. There is no evidence of a fall in productivity.

Mr. Gresham Cooke: But in the spring months of February and March production was almost static and unemployment was going down. Surely there must have been a fall in national productivity.

Mr. Callaghan: It is a little unwise to judge these figures over the short period of a month. It is far better to take the trend over a longer period. That, measured against the number of men at work and the decrease in working hours, shows no fall in productivity so far.

FIRST SECRETARY OF STATE (SPEECH)

Mr. Ridley: asked the Prime Minister whether the public speech of the First Secretary of State on 14th April about prices and incomes to the Scottish Trades Union Congress represents the policy of Her Majesty's Government.

The Prime Minister (Mr. Harold Wilson): Yes, Sir.

Mr. Ridley: Is the Prime Minister aware that the First Secretary of State said that the Government had no intention of running a policy of wage restraint? How can one possibly have an incomes policy which does not include an element of wage restraint?

The Prime Minister: There is rather a big difference here. I have seen what is perhaps a rather fuller account of what my right hon. Friend said than appeared in the Press. His main theme was that economic planning required the planning of incomes but that the Government had no intention of running a wage restraint policy on its own, for the important thing was that it must be part of a general incomes policy. I think that previous attempts to have a wage restraint policy broke down because of the lack of fairness. They were not applied to prices and to other forms of income.

NUCLEAR WEAPONS

Mr. Marten: asked the Prime Minister if Great Britain still has a stockpile of nuclear weapons.

The Prime Minister: I would refer the hon. Gentleman to the statement I made in answer to a Question by the hon. Member for Blackpool, South (Mr. Blaker) on 17th June.

Mr. Marten: In view of the international situation and our overseas obligations, will the right hon. Gentleman give an assurance that he will not hand over this stockpile of nuclear weapons to any other country or organisation?

The Prime Minister: In successive Questions week after week I have made it clear to the hon. Gentleman what our policy is. We intend to internationalise the so-called independent deterrent through our proposals in Europe and we hope to be able to work out something for the wider obligations to which the hon. Gentleman referred.

Mr. Maudling: Does it also apply to our forces east of Suez?

The Prime Minister: We welcome the right hon. Gentleman back from his visit abroad. If he had heard what I said last week on this subject he would know the answer. The reference in the last few words of my reply was to our obligations east of Suez.

Mr. Hugh Jenkins: Does not my right hon. Friend agree that the holding of independent stocks of nuclear weapons can only lead to proliferation? Is he aware that we, on this side of the House at any rate, welcome the policy of internationalising these weapons as being the same thing as preventing proliferation, which is the only thing which can lead to the total disappearance of these weapons from the world?

The Prime Minister: I made it clear the last time we debated the relevance of this to international schemes to stop proliferation that this is one of the main things in our minds in putting our proposals forward.

Mr. Soames: Will the Prime Minister confirm that, both with regard to the degree of our nuclear strength and to the extent of our national control over it, the situation remains the same today as it was when the Government took office?

The Prime Minister: Yes, Sir. Of course, so far we have not reached agreement on our proposal to internationalise our nuclear strength. I would add that the international strength that the party opposite led the country to believe we had and what we found actually existed are two very different things.

Mr. Paget: Will my right hon. Friend confirm that internationalisation does not affect the fact that we own and will continue to own nuclear weapons or that we own and will continue to own the means of delivery?

The Prime Minister: That is the position about ownership, but they will be committed, and committed irrevocably, to N.A.T.O. so long as N.A.T.O. lasts.

Mr. Grimond: Can the Prime Minister tell us to whom the proposals to internationalise nuclear weapons east of Suez have been made, what the current state of those proposals is, and what progress the Government are making with them?

The Prime Minister: They are at an early stage yet for reasons which I have previously explained to the House. This is tied up very much with the anxiety of a number of countries, shall we say, east of Suez about the development of the Chinese nuclear device and the need to provide some kind of international assurance to those countries.

Sir Alec Douglas-Home: The House should be clear about this matter. Can the right hon. Gentleman explain it a little further? I thought he said that we would retain bomber capacity in the Far East with nuclear capacity. Are those bombers, therefore, to be included in the Atlantic Nuclear Force and be internationlised as well?

The Prime Minister: Bombers east of Suez are not kept in the Atlantic Nuclear Force, which is in Europe, of course. I would have thought that that was a fairly simple proposition. The right hon. Gentleman misled the country about the extent of our nuclear forces, but any forces east of Suez, as I have said, are a matter for whatever international arrangements we can make in that area.

PARLIAMENTARY SECRETARY TO MINISTRY OF LABOUR (DUTIES)

Mr. Robert Cooke: asked the Prime Minister what are the duties of the Parliamentary Secretary to the Ministry of Labour.

The Prime Minister: My right hon. Friend the Minister of Labour is assisted by two Parliamentary Secretaries. My hon. Friend the Member for Greenwich (Mr. Marsh) has a special responsibility for industrial training and his other duties include matters relating to general employment and disabled persons. I have also asked him to assist my right hon. Friend the Minister of Technology with Parliamentary business in this House. The duties of my hon. Friend the Member for Farnworth (Mr. Thornton) cover the rest of the Ministry of Labour's work, including industrial relations, the Factories Act and related legislation, and women's employment.

Mr. Cooke: Is not the hon. Member for Greenwich (Mr. Marsh) more or less full-time employed in the Ministry of Technology? Would it not be much better if he were switched to that Ministry, as the right hon. Gentleman the Minister of Technology finds Parliamentary business so distasteful?

The Prime Minister: The hon. Gentleman must get over this little obsession of his. I am sure that when he comes to consider this matter he will realise that in the whole question of technological development and the automative revolution there is nothing more important than that technical developments should be related to human factors and that the relationship of those developments to training and training facilities is fundamental if we are to avoid disaster. It is therefore extremely useful that there should be a member of the Ministry of Labour staff having this very close link with technology.

Mr. Rhodes: Is my right hon. Friend aware that his confirmation that the hon. Member for Greenwich (Mr. Marsh) has special responsibility for industrial training will be widely welcomed in the North-East? Is he aware that his hon. Friend's recent visit to that area has been


described to me by local industrialists as extremely useful? The hon. Member for Bristol, West (Mr. Robert Cooke) may not appreciate this, but we in the North-East do.

Mr. Godber: In view of the Prime Minister's statement that the hon. Member for Greenwich (Mr. Marsh) is primarily concerned with industrial training, will the right hon. Gentleman explain why it is that while in the last six months of the previous Government a Central Training Council and four industrial training boards were set up, since then only one additional board has been established?

The Prime Minister: In the thirteenth year of the last Government they began to do something. In the first month of this Government my hon. Friend was able to devote himself to this problem almost full time. A great deal of progress has been made and I am surprised that the right hon. Member for Grantham (Mr. Godber) is not aware of it. There have been a number of important announcements on that subject from the Ministry today.

MINISTERS (PRESS LETTERS)

Sir Knox Cunningham: asked the Prime Minister why he has expanded the rule laid down by his predecessor on 29th January, 1947, that Ministers may write letters to the newspapers in order to supplement other methods of informing the public of the work of their Departments, to embrace cases in which a Minister may write to a newspaper to defend himself from criticism appearing in that paper.

The Prime Minister: I have not expanded the rule.

Sir Knox Cunningham: Is not the Prime Minister aware of the mounting tide of criticism in this country and that people are going about saying, "Don't blame me, I voted Conservative"? Is he preparing to get the Ministers, all 119 of them, to write to the Press to reply to this criticism?

The Prime Minister: The hon. Gentleman and I live in two different countries. The fact that people who voted Conservative and are prepared to admit to it are now saying so is not a sign of any change

of opinion on their part or that of anybody else. However, I am a little surprised that they should be using slogans borrowed from or reproduced from an American slogan, "Don't blame me, I voted Goldwater".

EXPORTS AWARDS

Mr. Maxwell: asked the Prime Minister what progress the Exports Awards Committee has been making towards setting up machinery for considering claims for the awards for outstanding export achievements and for technological innovation; and if he will make a statement.

The Prime Minister: I have as yet nothing to add to the Answer I gave on the 17th of June to a Question by my hon. Friend the Member for Goole (Mr. George Jeger).

Mr. Maxwell: When will it be possible for my right hon. Friend to make a statement on this important matter? Our exporters have noticed that whereas in order to encourage exports the previous Administration merely said, "Exports are fun "—[HON. MEMBERS:" Question."]—they have noticed that the present Government—[HON. MEMBERS: "Question."]—took the immediate action of offering export incentives. Our exporters now require the other half of the step to be completed. This important Committee matters to them and we would like to know when a statement will be made.

The Prime Minister: In answer to the question— [Laughter.]—the question "When?"—the position is that this very high-powered Committee has been meeting, as my hon. Friend knows, presided over by His Royal Highness the Duke of Edinburgh. It contains representatives of those concerned in industry. I happen to know, or think that I know, that the work is nearly complete. I shall make a statement as soon as we have details.

Mr. Onslow: Is the Prime Minister aware that this year marks the thirtieth anniversary of the creation of the Stakhanovite movement in industry in Russia and that, whatever the experience of the hon. Member for Buckingham (Mr. Maxwell) may be, subsequent Russian experience suggests that the profit motive is the most effective stimulus to economic progress?

The Prime Minister: Yes, Sir. But I hope that the hon. Gentleman is not suggesting that businesses wish to go in for exports only if they can see big profits in them. One of the big problems we have to face is that exporting is a hard way of earning money. I am constantly receiving reports from Commonwealth areas of potential orders which are going begging because we do not even put in a tender. Whether it is Stakhanovism or anything else, I hope that more of our exporters will go after those orders which they can get.

Mr. Strauss: Will my right hon. Friend consider the invariably stimulating effect of awarding booby prizes?

The Prime Minister: This would raise some very difficult questions about who would qualify for them in the export trade.

Mr. Kershaw: Has the Prime Minister any intention of awarding M.B.E.s for exports in future?

The Prime Minister: We have been recently reading Press reports of a considerable number of awards of honours at all levels specifically for export services. I think that the whole House feels that the special citations in the last two Honours Lists for services to the export trade are for the general good of the country and show recognition of those who have been earning foreign currency.

WEST GERMANY (QUEEN'S VISIT)

Mrs. Renée Short: asked the Prime Minister what was the cost to public funds of the recent visit of Her Majesty the Queen to West Germany.

The Prime Minister: £34,000, Sir.

Mrs. Short: Is my right hon. Friend aware that there is a considerable feeling in this country that to export 4½tons of silverware, glassware and candelabra for this purpose was somewhat exaggerated? Is he also aware that the visit is being regarded by progressive elements in West Germany as being of considerable support to the present West German Government, with all its nuclear ambitions and its claims for what it is pleased to call the "Lost Territories", which will have

a considerable effect on the British people once again?

The Prime Minister: I am not sure whether my hon. Friend's definition and my definition of "progressive elements" are exactly the same, but I can claim to be in touch and to have been in touch for many years with at any rate the Social Democratic Party in Germany and I can say that the Social Democratic leaders played the fullest part in the universal welcome given to Her Majesty on this visit.

Sir Alec Douglas-Home: Is the right hon. Gentleman aware that the population of this country by no means shares the mean and niggardly attitude of the hon. Lady to the Queen's visit and that everybody rejoices in its enormous success?

The Prime Minister: I support what the right hon. Gentleman has said about the rejoicing about the success of this visit. It was he who first suggested it and we continued with it and extended it to Berlin. He would be the first to agree that a good will visit of this kind is something which should be entirely separate and disentangled from policy questions. We have policy discussions with the West German Government, many of them on issues on which we agree and some on issues on which there are outstanding differences to settle. It would be quite wrong to link this visit with any of those discussions at Governmental level.

Mr. Bellenger: Does my right hon. Friend realise that Her Majesty's visit has probably created far more friendly diplomatic and other relations between the two countries than any other visit in this century?

Mr. Kershaw: Will the Prime Minister not separate this visit too much into a good will visit and will he not acknowledge it would be very desirable to follow up this visit by practical action to increase our co-operation in Germany?

The Prime Minister: I think our Government relations have been very close and very effective. I have had two discussions with the German Chancellor this year. We have discussed things on which we agree and we have also had discussions on the offset agreements. I think it would be wrong to link the importance


of this State visit in our minds with, for example, possible disagreements that we have been having on the offset agreements.

Mr. Rankin: Should my hon. Friend not be congratulated on her Question? Is it not obvious that she has brought the attention of the House to bear on this issue to the profit of all concerned?

The Prime Minister: I think it has been a very good exchange. It was a very good Question and I hope the House thought it was a very good Answer. I think that the profit and value of this Question began to occur as soon as we got away from silverware and candelabra and on to the real results of the visit.

COMPLAINT OF PRIVILEGE

Mr. Speaker: Yesterday, the hon. Member for Ilkeston (Mr. Raymond Fletcher) made a complaint to me of a breach of privilege founded upon words appearing in the Sun of Saturday, 19th June.
I have very carefully considered the hon. Gentleman's complaint and in my opinion it does not, prima facie, give rise to any breach of privilege.
It must be understood by the House that by saying so I in no way affect the right of the hon. Member or any other hon. Member to raise the matter otherwise. It just means I cannot give to his complaint precedence over the Orders of the Day.

FEU

Mr. Gregor Mackenzie: I beg to move,
That leave he given to bring in a Bill to abolish feu duty in Scotland.
It seems appropriate—

Mr. Speaker: Order. An hon. Gentleman is addressing the House. There must be proper conditions so that he can be heard.

Mr. Mackenzie: It seems appropriate on a day when we celebrate the English style of Parliament founded 700 years ago and the signing of the Magna Carta, which gives a measure of freedom to so many people, that this afternoon we might spend

a little time discussing a proposal which would give a degree of freedom to many people in Scotland.
The payment of feu duty in Scotland is something which is not fully understood, but which is always resented by vassals in Scotland. The reasons for the payments have perhaps been lost during the centuries. They have little modern meaning and certainly little place in a society which sets itself up to be a dynamic and modernising society.
The whole system of feudal superiority in Scotland started very many centuries ago. It was once said by a Member of this House that perhaps we in Scotland were a little more progressive in so far as a great deal of the land was nationalised. The right of land in Scotland lay in the main with the Crown and centuries ago the Crown parcelled out land for services rendered by the nobility. There were a great many people who took up a good deal of Scotland's land at the time of the Reformation and this was confirmed at a later stage by the Crown. Thereafter, the feudal system came into being.
The feudal superiors paid homage to the Crown which, in turn, parcelled out land in the county or shires to those who would serve the Crown. These people were known as the vassals and to this day we still talk in Scotland of feudal superiors and vassals. It was part of the duty of the vassal to serve his lord in time of war or at other times to support him and it was part of the duty of a feudal superior w support the vassal at all times.
A distinguished Member of this House once said that if feudal superiors in Scotland in the present day were to take their responsibilities seriously they might be prepared to meet that part of the burden of armaments which should normally be paid by the people of Scotland. However facetiously that remark was made, it is still true that there is this obligation. In the fullness of time the obligation to serve the lord was translated into money terms and the vassal paid his feudal superior, a feu duty in perpetuity, and this is something which exists today.
I have a letter from a man in my constituency suggesting that he would be willing to serve in the private army of his


feudal superior provided that he did not need to pay feu duty. I have had another letter from a man in Dundee who, like wise, offered to serve in the private army of his feudal superior. His superior is a distinguished member of the Opposition and he made the provision that he must only be called on to serve his feudal superior for military and not for political purposes.
It may seem strange to many hon. Members of the House, particularly those representing constituencies south of the Border, that in 1965 a Scottish Member of Parliament should be talking in this way of superiors and vassals and all that goes with it. This seems to point to the urgent necessity of reforming all the land laws in Scotland. We have had over the centuries a great many reports, but precious little action. In Scotland, I am but a humble vassal paying my feu duty to my feudal superior. It may not be that someone in my position is entitled to offer any comment on this subject at all.
I can assure the House that there are thousands of other vassals like me in Scotland who do not like paying their feu duty and a great many who do not understand why they pay it because, in the long term, they get nothing at all for it.
At present, in Scotland we have such distinguished lawyers as Professor Halliday, of the University of Glasgow, with a committee, looking at the whole question of conveyancing. We have had it considered by the Muir Society and two years ago the Scottish Law Agents Society remitted to its conveyancing committee the whole question whether or not feudal superiority and all that went with it should be abolished. These people have had a great deal of difficulty in reaching any conclusion and we appreciate this. The business of a landlord is one of the most complex we have in Scotland. It is a great problem and one which has seen the light of day more in the past few years than at any other time. There is genuine concern, and I think that this is because in the years between the wars feu duty was purely nominal. One paid 5s., 10s., 15s., or 20s., to the feudal superior every year.
However, two things have happened to change the picture. First, there was

passed the Town and Country Planning Act, 1947, which considerably enhanced land values in Scotland and feu duties reflected the increased cost of land which had to be paid in Scotland. Secondly, feu duty has become almost big business. It is an investment. A feu can be bought and a feu can be sold. The feudal superior in Scotland is now more likely to be the chairman of a large insurance company or of a speculative building company than a nobleman, as was the case many years ago. These modern feudal superiors, these men of business, are well aware of the obligations which are contained in the feu charter, and they use the regulations in it to the very limit.
These two factors have, in my view, had a very serious effect on the Scottish way of life. We now refer to "the property-owning democracy". We want people to own their own homes. We should encourage the spread of home ownership in all classes of society. What is happening in Scotland is very simple. I builder buys land from the landowner, the feudal superior. He is also entitled, with the consent of the superior, to buy the feu. It may well be that the cost of a piece of land is£5,000 and that the annual feu duty is£100.
This is translated into a 20 or 30 years' purchase price. The total sum of land cost and of buying the feu is, invariably, passed on to the people who have bought houses on modern estates in Scotland. The builder then becomes a feudal superior and, instead of letting his land at the old nominal charge of 10s. or a couple of pounds, charges about£15,£20, or£25.
Like, I am sure, many of my colleagues, I have had letters about this matter. One man in Dumbarton wrote to me saying that his feu is eight guineas, whereas a similar house has a feu duty imposed on it of£25. This is happening in Ayrshire. In one part of the county there is a feu duty of£3 whereas a few yards away it is£40 which is the result of new building. In my constituency, people who were paying£2 or£3 per annum a few years ago in respect of a very small house are now being asked to pay£15,£20, or£25. Hon. Members will appreciate why this matter has seen the light of day and why people are concerned about feu duty.
When I indicated my intention of asking leave to bring in the Bill, I received a very large number of letters from people in all parts of the country. One group of letters which struck me particularly came from employees of a firm in Bedford. This firm desired to move north of the Border, thus bringing employment to the constituency of my hon. Friend the Member for Fife, West (Mr. William Hamilton), but it did not understand the question of feu duty. It was calculated that, if the firm transferred to Scotland each employee would have to find another£24 before he could meet his obligation. What chance have we of encouraging people to come to Scotland if they are to be hindered in this way?
There is a second anomaly which was raised by my hon. Friend the Member for Bothwell (Mr. James Hamilton) some months ago, when he pointed out that the feudal superior still exercises his feudal rights in that with a block of houses in tenement form the feudal superior is entitled to select one of the 16 or 17 tenants as the collector of his feu duty. If he fails to collect it from the other tenants he is liable to pay the whole feu duty himself, and, further, if he fails to pay the whole feu duty, he can be taken to court on a charge of irritating the whole feu. The House will appreciate that in Scotland this is not regarded as being very democratic.
Another quite serious point concerns industrial development. Many industrialists who have wanted to expand their businesses have raised problems with me. I had a letter from a man who exports considerably to North America. This is encouraged by the town and by the Government. He is given town and country planning permission and he is given a grant by the Board of Trade, on the advice of the Board of Trade's Advisory Committee, and yet when he applies for an extension in the Dean of Guild Court he finds himself opposed by his feudal superior. The feudal superior does not want to stop the extension, but he wants this man to buy the feu at a suggested 50 years' purchase price—about£5,000. In other words, this is a form of blackmail in respect of something without which this man cannot extend his business.
My third and last point concerns the problem of many local authorities in Scotland. They are engaged in slum clearance, and they would wish at all times to buy the feu. The money for this must be borrowed over a period of years and at quite considerable cost to the ratepayers.
Feu duty is something which we regard as an injustice and we do not think that it is acceptable in modern times. We think that there must be a system which is seen to be fair. I trust that the House will give me leave to introduce the Bill and will facilitate its passage.

Question put and agreed to.

Bill ordered to be brought in by Mr. Gregor Mackenzie, Mr. William Hamilton, Mr. Bence, Mr. Hannan, Mr. Hugh D. Brown, Mr. Carmichael, Mr. Doig, and Mr. Manuel.

FEU

Bill to abolish feu duty in Scotland, presented accordingly and read the First time; to be read a Second time upon Friday, 2nd July, and to be printed. [Bill 166.]

SCOTTISH ESTIMATES

Committee of Supply discharged from considering the Estimates set out hereunder, and that the said Estimates referred to the Scottish Grand Committee:

Class III, Vote 2, Scottish Home and Health Department.

Class IV, Vote 13, Roads, etc., Scotland.

Class V, Vote 2, Department of Agriculture and Fisheries for Scotland.

Class V, Vote 4, Department of Agriculture and Fisheries for Scotland (Agricultural Grants and Subsidies).

Class V, Vote 6, Department of Agriculture and Fisheries for Scotland (Agricultural Price Guarantees).

Class V, Vote 10, Fisheries (Scotland) and Herring Industry.

Class VI, Vote 2, Scottish Development Department.

Class VI, Vote 8, General Grants to Local Revenues, Scotland.

Class VI, Vote 10, Equalisation and Transitional Grants to Local Revenues, Scotland.

Class VII, Vote 4, Scottish Education Department.—[Mr. Bowden.]

Orders of the Day — FINANCE (No. 2)BILL

Considered in Committee [Progress, 21st June].

[Dr. HORACE KING in the Chair]

Clause 79. (TRANSITIONAL RELIEF FOR EXISTING COMPANIES WITH OVERSEAS TRADING INCOME.)

3.49 p.m.

The Chairman: Before I call the next Amendment, may I make one observation? I hope to have on the usual notice boards this afternoon the duplicated notice of the new Clauses which I have selected.
May I say to hon. Members whose proposed new Clauses I have not selected that I lave taken careful note of all representations that have been made to rue on the Clauses, as, indeed, I have taken very careful note of all representations made to me during the Committee stage on every Amendment before the Committee.

The Financial Secretary to the Treasury (Mr. Niall MacDermot): I beg to move Amendment No. 636, in page 104, line 13, to leave out "five" and insert "seven".

The Chairman: It will be convenient to take, at the same time, Amendment No. 675, in page 104, line 13, leave out from "in" to "calculated" in line 14 and insert:
the year of assessment 1966–67 and any following year of assessment".
Amendment No. 535, in line 13, leave out "of the five years" and insert "year".
Amendment No. 732, in line 13, leave out "of the five".
Amendment No. 733, in line 16, leave out from "source" to first "the" in line 17.
Amendment No. 536, in line 16, leave out "of those five years" and insert "year".
Amendment No. 537, in page 104, leave out lines 23 to 26, and the Government Amendments Nos. 637 and 638.

Mr. MacDermot: My hon. Friend the Member for Rutherglen (Mr. Gregor Mackenzie) has just given us a good example. If we can manage to address the Committee in such technical language as he has used, perhaps we will get our Amendments with equal facility.
The Amendment which I am moving is the first of a number of Amendments which the Government have put down to Clause 79, which deals with the transitional relief for companies with overseas trading income. These Amendments considerably enlarge the relief. They have been put down as a result of representations which have been made by interested companies and associations, many of whose viewpoints have already been argued during our debates in Committee and in the House.
If I may remind the Committee of the general object of this transitional relief, it is to give to companies who trade overseas the time and the opportunity to adjust themselves to the impact which the introduction of Corporation Tax will Make upon them. Domestic companies will receive the advantage—in many cases the considerable advantage—of the lower tax rate for their retained profits. This will help them to meet the problems with which they will be confronted in maintaining their distribution as a net distribution to their shareholders. Companies which are trading overseas will not necessarily get any comparable relief for retained profits because the level of taxation for them in the first instance will depend upon the level of overseas taxation.
Many of those companies which have been operating in countries with a corporation tax system which has a relatively low rate of Corporation Tax, as many of them have, will already have been enjoying the advantages which the domestic companies will enjoy under the new system in this country. That does not, however, alter the fact that they will still receive an impact as a result of the introduction of the Corporation Tax. They will still be confronted with the problem of the separation at home of the company taxation from the shareholders' taxation. It is to help these companies to tide over this period that this transitional relief is introduced. The general intention is to put them, certainly


in the initial years, in comparable positions to purely domestic companies in the United Kingdom.
As hon. Members will know, the form of the relief is voted moneys which will be paid against claims made by the companies. The basis of the scheme is that a company will be able to select from certain past years a base year. The relief as framed in the Bill was to be a proportion of the amount by which the overseas taxes for which credit was allowed in that base year exceeds the credit which would have been allowed if Corporation Tax had been in force for that base year.
As a result of the representations that we have received, we are putting before the Committee today a number of Amendments. I will not seek to enumerate them all now; we will have the opportunity as we come to them to consider each one in detail. This first Amendment extends the period of relief from a five-year to a seven-year period. The particulars of the tapering are dealt with in the next set of Amendments. There is no need for me to say more about our Amendment at this stage.
We are discussing, at the same time, a series of Amendments which have been put down by hon. Members opposite. All I would say about them at this stage is that they all seek to make this overspill relief a permanent relief instead of transitional. As such, I must make it clear from the outset that those Amendments are unacceptable on principle and on principles which we discussed at great length in a debate lasting 5¼ hours last Wednesday when we considered Clause 60. I hope, therefore, that hon. Members will not find it necessary to seek to argue again at length the general principles which have already been decided by the Committee.
To restate our position in a sentence, we are not willing as a permanent feature of our tax system to favour overseas investors by insulating them permanently against the effects of the introduction of Corporation Tax or to give them a relief which other countries do not give to their overseas investors, nor, indeed, where they have a Corporation Tax, to their domestic investors.
The object of this transitional relief is to give relief to companies trading

overseas against the hardship which would result if they had to receive the sudden, full impact of the change. It is our view, which is supported by the warm reception which the publication of our proposed Amendments has received, that with this increased relief companies trading overseas will be given a really substantial transition period. Assuming what I may call the normal growth in their business and in their profits over this seven-year period, they should be able, in most cases, to absorb the additional burden which is put upon them without having to diminish either their plough-back or their net distributed dividends.

Mr. Peter Emery: We now come to the technical and quite involved working of the general provisions applying to Corporation Tax overseas. I am certain that we will attempt, as the Financial Secretary has suggested, as we did throughout yesterday and all the preceding days on the Bill, to try to keep as near as possible to the technicalities. It is with that object in mind that we on this side will be working specifically during the day.
I must in all honesty point out to the Financial Secretary, however, that we on this side are in some difficulty in trying to come to grips with all these points when we find that there has been put down this morning, for the first time, a starred Amendment in the form of an entirely new Schedule—(Supplementary provisons about dividend increases in 1965–66)—dealing with Clause 78. Its opening words specifically state:
This Schedule has effect for the modification of section 78 of this Act".
It is rather a nonsense to expect us to appreciate all these problems when that new Schedule was put down only this morning and we are debating the Clause this afternoon.
I say with great modesty to the Financial Secretary that if the Socialist Government would cast their mind back to their days in Opposition, he will agree that if the Conservative Government had done this kind of thing all hell would have broken loose from the Dispatch Box.

Mr. MacDermot: I am sure that the hon. Member does not want to be unfair. He will recognise that the new Schedule


has been on the Notice Paper for a considerable time. It is starred because of slight alterations which have been made in its wording.

Mr. Emery: I am aware of that, but let us be quite fair. I came in here at noon to find a starred new Schedule. I had to plough through it line by line without the help of the Civil Service or a secretariat to see what all the alterations were. In fact, I have spent two hours, giving up part of my lunch-tune, to make certain what these minor alterations are. You have done the same, Dr. King, and it appears that hon. Members opposite have done so, too. Then it only goes to make a nonsense of the difficulties into which the Government are getting us all.
4.0 p.m.
Let me waste no more time on that point, but come particularly to the Amendments seeking to alter the five years to seven years. This is nothing like so simple as the few words in the Amendments would imply. Obviously, we on this side of the Committee are particularly pleased that the Chancellor has altered his mind from the original view that he took, and we welcome that, but it is slightly overstating the case to say that this proposal met with a warm reception when it was introduced. I would refer the Financial Secretary to the Financial Times of 2nd June, when the proposal was first published. That newspaper said:
The concessions represent an achievement for the Conservative Opposition in Parliament…
I feel that representations from many sources, as well as from these benches, have brought about these concessions.
In the same way, may I draw to the attention of the Chancellor the fact that warm reception is likely to be double-edged, particularly in the light of his roneod extra White Paper—a very helpful rundown of the reliefs which he has given—which states, in paragraph 2:
The object of the transitional relief is to give these companies funds to compensate…
That is not the way to begin getting the best feeling of these companies. The Government take away, and then suggest that by releasing some of the taxation that they intended to demand this

is giving the companies something. This is the wrong type of approach. However, I do not want to make a meal out of that, for I am certain that the Chancellor will understand it.
While I am on this point of the concession, I think that we ought to be very careful in seeing that the Government do not overplay their hand, because, although we on this side of the Committee welcome the fact that they have gone as far as they have, they have still gone nothing like as far as we on this side of the Committee would normally suggest. Also we find it particularly galling to hear the suggestion that this is a direct relief to the shareholder in enabling him to receive the same form of dividend that was initially possible before the Corporation Tax came into existence.
To many people this would imply that the relief is to be directly to the shareholder, and this is just not so. The relief is to the company and it is taxable before it reaches the shareholder. Indeed, Income Tax on distribution will have to be paid on it. Therefore, it is nothing like as gallant an effort to give relief as many would suggest.
When the Chancellor is attempting to bend over to give relief to the shareholder—in other words, to enable the dividend to be rnaintained—if one follows the logic of the Chancellor's whole approach in this Bill, that there is a differentiation between the corporation and the shareholder, which we on this side of the Committee have always argued against, surely it would not be unfair of us to say that logically this concession ought to be given to the shareholder and not to the company. I specifically ask the Chancellor to consider this point and to consider that the relief should be given directly to the shareholder and not just to the company itself.
Coming to the Amendments proposing the insertion of seven years, I suggest that the Government have just looked at numbers and have picked one out of the sky. They had to settle on something in order to work out some relief, but why seven years? Why overthrow the whole concept of the double taxation relief? I am not going back into the arguments dealing with the whole principle, but, basically, the Amendment states that after seven years there will


be an entirely new concept of double taxation relief.
The problem relating to the seven-year period is that if we had had this Corporation Tax for overseas income and overseas companies applicable during the last 18 years, at no place would we have found the same build-up in our overseas investment which we have got at the moment. Therefore, it seems to me that there can be no doubt—and I see some hon. Members opposite nodding assent—that this proposal makes it quite impossible to continue with the amount of investment overseas which is built up year by year to be able to provide our invisible earnings.
Surely it must be accepted by the Government that if our investment overseas was not running at the level of£1,400 million, as it is, but was perhaps double that amount, or perhaps£3,000 million, we would have no balance of payments problem whatsoever. It is in order to be able to work to that level that it is so essential not to ruin the long-term possibilities of investment overseas. Yet that is exactly what the Government's Amendments set out to do. My major criticism is that the proposal is using a long-term effect to try to deal with a short-term problem. It is because of that—although it is better than the original proposal in the Bill—and because it is still not getting away from that situation, that the proposal goes nowhere like far enough.
May I put this question to the Chancellor? Why have you not thought it worth while to grant relief from this tax for the period of your study, which you have already given an undertaking to bring into being—

The Chairman: Order. It looks as though the hon. Gentleman is addressing the Chancellor direct. He must not do that. He must address the Chair.

Mr. Emery: I apologise, Dr. King. I had no intention of doing that. I was perhaps getting carried away with the problem that is involved.
If I may say through you, Dr. King, I wonder why the right hon. Gentleman has not thought it worth while to allow a period while this study is being carried

through. All sections of the Committee have urged this study on the right hon. Gentleman. The hon. Member for Birkenhead (Mr. Dell) has urged the great need for this study. As the relief is to be carried through for three years, why could we not have a relief from the operation of this tax for a two-year period until all the facts and figures have been produced? This seems quite a reasonable question to ask. If the Chancellor would do this, it would prevent this chopper hanging over the head of British industry. Secondly, does not the Chancellor realise that by doing it this way industry must be made to feel that, whatever the outcome of his study of investment overseas, we are committed to this provision as it is at the moment?
Will not the Financial Secretary, in reply, make it clear to industry that if his study throws an entirely new light on the problem of overseas investment, and if by misfortune the present Government are still in office, they will carry out a complete review of scaling and tapering? It seems to me obvious that many people have urged the Chancellor to make a statement that he would not bring in this provision for at least one year.
Will the Chancellor state clearly how many organisations have asked him to postpone it for a year? How many have approached him? I do not want him to be specific as to numbers. It is my impression that many firms have tried to impress upon him that he achieves nothing by carrying this provision through in the Finance Bill and that it should be postponed for at least one year. Will he confirm that a considerable number of firms have made this application to him?
I see that the opening of the historical note on the presentation of the Address in Westminster Hall this morning was to the effect that the word "Parliament" originally meant a conversation. I hope that our debates can he carried out with this in mind and as a matter of conversation. Because my hon. Friends wish to raise a number of questions on their Amendments, I will ask no more. But it should be clear that, although we accept that the Amendments are better than the Bill, they still do not go far enough in order to return to our initial concept that the whole idea of double taxation relief is still basically correct.
This Amendment does nothing to overcome the difficulty that investment overseas is still being taxed to a much greater extent than at any other time in the history of the country.

Mr. Grimond: The last thing I want to do is to go again over the general ground which vie have covered fairly fully on the question of overseas investment, but as the Financial Secretary introduced the Amendment with some remarks about the background, and as he was followed by some observations from the Conservative Front Bench on the subject of overseas investment and double taxation and the need to treat companies fairly, may I say how I see the present position?
It was widely held outside the Labour Party that there was a problem over overseas investment. Many people would have said that it principally arose because of Government expenditure, but it was admittedly considered to be a problem. The Chancellor sought in the original Finance Bill to curtail overseas investment by measures which were designed in his view to remove what he understood was a discrimination in favour of it.
The first point which I would make is that I am wholly unconvinced that there was any discrimination in favour of overseas investment in so far as anyone, whether a company or an individual, making such investment would find that there was less tax to pay if the investment were made abroad than if it were made here. They would pay tax to a different tax gatherer, but from their taxation point of view there would be no gain, with the marginal exception of the very rich man in some places and with a marginal exception in favour of South Africa. Generally speaking, there is no discrimination.
But where the question is still open is whether from our point of view it is worth while to invest overseas. One is bound to admit that a country with heavy indebtedness must make out a very good case before it makes investment overseas. As I understand the position, the Chancellor has said, "I may be wrong about this. I am willing to have an inquiry into whether the total return to companies investing overseas makes such investment worth while. To enable that

inquiry to take place in an amicable atmosphere and to ensure that there is no hardship on companies which have invested overseas I will extend the temporary arrangements to make them slightly more generous." It is for the purpose of having this inquiry that he has tabled these further Amendments—or that is one of the purposes. The hope is that this inquiry will be made in a non-controversial atmosphere.
4.15 p.m.
A very interesting discussion is going on in the journal called "Moorgate and Wall Street", between Dunning and Clay on the whole matter. From that has emerged a doubt about statistics and a doubt about the interpretation of the statistics—and a very considerable doubt about the proper basis of comparison. I believe that this is valuable in connection with the general inquiry which I understand the Chancellor wants.
Against that background the Committee have to consider the Chancellor's proposals to tide over the position of the overseas companies which it is admitted will be adversely affected by other proposals in the Bill. I have three points of detail to make. The first we may be able to discuss later, and it concerns the point of the base year for companies which have invested overseas, particularly in mines. They may have been having difficulty in bringing back profits to this country, they will be severely penalised in years to come when they may find themselves precluded from any of the benefits of the Clause; they may be unable to establish any profit during the base year. Perhaps the Government will look at that point. It should be possible to extend the base years.
It is clear from paragraph 2 of the Chancellor's memorandum that his intention was to assist shareholders. Perhaps I may read the opening words of paragraph 2, headed "Overseas Tax".
These companies might find it necessary as a result to reduce their dividends, and this might cause hardship to the shareholders. The object of the transitional relief is to give these companies funds to compensate them in some measure for tax they have to deduct and pay over to the Revenue in respect of the dividends they pay, and thus to help them maintain their dividends.
Nothing could be clearer than that. The object is to help them maintain their


dividends. An example is given in the White Paper.
I am not at all clear how the present overspill arrangements will attain this object. It is clear, for instance, that if the Chancellor were to wish to assist dividends to the extent of£500,000 through this transitional relief the figure would have to be grossed up by the amount of the withholding tax. I am told that this would amount to£833,000. In fact, the companies would pay back in tax all except£500,000. Thus there will be a considerable difference between the gross and net figures. Is there to be any sanction on companies? Will they be at liberty to pay out this money or not? I am not sure how the Chancellor hopes to bring any influence to bear upon them.
The right hon. Gentleman says that this is not a matter for him. If it is not, the taxation position of companies will be made very different according to whether or not they pay it out. If a company does not, there is a gain to it. If it does, then it must pay withholding tax on it. Has this been appreciated by the right hon. Gentleman? As his object is apparently to assist shareholders, we should be given a clear understanding of his intentions and be told whether this is to be a general payment to companies, with which they can do what they like, or whether he has something else in view.
The Chancellor has extended the period to seven years and has been asked why he has selected that period. I appreciate his difficulty and that, whatever period the transfer takes, there will always be those who will say that it should be longer or shorter. I have said on previous occasions in this Committee that none of this is final and that the right hon. Gentleman or any future Chancellor will be at liberty to alter it next year or at a later date. We are discussing what is, in effect, a statement of the right hon. Gentleman's present intentions. That being so, it cannot bind this Committee or any future Chancellor. It is, as I say, merely a statement of his general intentions.
I believe that the Bill is too big and that the right hon. Gentleman should have postponed this part of it for a year, had his inquiry before introducing these proposals and then, if necessary, brought

the matter to the Committee. However, at this stage it is too late to suggest that one of the major parts of the Bill should be struck out, although I appreciate that some might like to do that.
The matter could have been left for a year and have been brought in later—

Mr. Edward Heath: On Report.

Mr. Grimond: I do not know when the Report stage will be finished. I hope to get away before the end of August.
Having deliberately set out, and rightly so, in his further proposals to make it clear to companies that, to some extent, the Chancellor's mind is still open—that he is prepared to wait for the results of his inquiry and that he does not want unduly to penalise companies if they prove their case and show that their overseas investments are worth while—it would be worth his while to go further and say that if it can be proved that some companies under this transitional relief will not be as satisfactorily effected as he wishes, he will take further steps both as to the amount and the timing.
I have shown that several important points remain outstanding, including the one about shareholders, the base years and the fact that it may turn out that the period will need to be adjusted. I have pointed out that the period will be open for adjustment and review in subsequent years. I welcome the changes the Chancellor is proposing and I hope that he will confirm the purpose of them. I hope that he will reiterate his desire to have a proper and impartial inquiry into this matter so that he may further set at rest some of the misgivings which have been expressed and which, to some extent, continue, particularly among some of the largest companies operating overseas, which are the most valuable to this country.

Mr. R. H. Turton: I take issue with the Financial Secretary. He said that we had had a long debate on Clause 60 and that, because of that, we should not go into this Clause in great detail. I recall that when we discussed Clause 60 and raised points of detail we were referred to Clause 79. Now that we are discussing Clause 79 we are pushed back to the discussion we had on Clause 60.

Mr. MacDermot: I was not objecting in the slightest to detailed points being raised or saying that hon. Members should not go into the details, merely that we had worked over the general principles very fully and that I hoped that the Committee would not find it necessary to go over all the arguments again.

Mr. Turton: Nevertheless, the lengthening of the taper does not meet this problem. We are making a great mistake in the Bill because of the way in which we are dealing with overseas investments. I wish to remind the Committee of the letter which was sent to the Chancellor by the President of the F.B.I., in which he stated:
What we find difficult to understand is the decision to reduce overseas investment both in the long and in the short-term on the footing that it is imperative for the short-term needs of the balance of payments—and this in face of evidence that it may even aggravate our short-term imbalance".
This is the real criticism of the way in which the Chancellor has dealt with this problem, not only in Clause 60 but also in Clause 79. If there is a short-term problem—and we all agree that there is—the method of giving a concession to companies for three years and then hitting them hard is the wrong way of dealing with the matter. This will have a serious effect on our export trade and on the whole or our expenditure and investment in the developing countries.
In this connection, I quote the words of the Chairman of the Associated Portland Cement Co. who stated in the company's annual report:
Most of our overseas investments have been made to retain our share in export markets where no cement was made in former times and, quite apart from the value of the dividends remitted to this country, have been of great assistance to our export trade in that most of the plant in these Works was made in this country".
He went on later to state:
The future of your Company depends on expansion overseas just as much as at home and it would indeed be a disaster for the country if British Industry was to be kept in a strait jacket as far as overseas investment was concerned and thus leave the field clear for foreign competitors.
In my view, those two quotations sum up the criticism of the way the Chancellor is dealing with the matter, both in Clause 79 and by the seven-year taper. It is wrong to try, by this means, to bind

Parliament in 1969–70, as well as subsequent Parliaments.
I can see that a strong case might perhaps be made for changing over to the Corporation Tax method. There may be a strong case for selective control over overseas investments, but to use this method, which will take the heart out of investments particularly in the young developing countries, is a great mistake, especially in view of the survey which the Chancellor is instigating into this whole question.
I press the point made by my hon. Friend the Member for Reading (Mr. Peter Emery) that the right way to do this is to hold the matter over until the end of the review. Provided that this Committee lays down that for a certain period of years the provisions of Clause 79 will inure, so that the business will receive the double taxation relief for that period, the later years can be left open for future Parliaments after the survey.
It may well be that something like the provision for the last four years of the taper may have to be used for certain types of overseas investment, but not for those types of overseas investment which we wish to encourage—for example, in the young developing countries or the sort of investment which Mr. Reiss referred to in his annual statement to the Associated Portland Cement Company, where it is important to win for this country orders for plant. It should be remembered that in the cement industry investment is made in the face of great foreign competition, particularly in the young developing countries. It is important that special concessions should be given. Is there any reason why these matters should not await the completion of the survey?

Mr. Edmund Dell: The right hon. Gentleman referred to there view which will be undertaken by the Federation of British Industries. Would he agree that it would be desirable for the F.B.I., in undertaking this review, to undertake it in a rather more judicial frame of mind than was represented in the quotation from the letter which the right hon. Gentleman read?

4.30 p.m.

Mr. Turton: I have quoted with approval a letter from the Chairman of the F.B.I., and the hon. Gentleman will realise that I do not share his criticism


of that letter. I very much hope that not only will the F.B.I. review the whole question of overseas investment but that the Chancellor will also do so—and I understood from our previous debates that it was his intention to do so.
If both sides are to review the question, it would be much better to wait until we have the result of the review rather than have the taper now published with its harsh effects for the years 1969–70 onwards. To hold up the idea of the taper until then would mean that there would be no deterrent to overseas investment at present. The damage the taper does is that it is a warning that in the time of a future Parliament—when, quite clearly, neither the Chancellor nor the Financial Secretary will be occupying those seats—there will be this threat to these overseas investments and these companies. The right thing for Parliament to do now is to make provision for this year and next year, and leave the future to take its course.
I agree with the right hon. Member for Orkney and Shetland (Mr. Grimond) that in Finance Bills we do not require statements of intent. One of the weaknesses of this very long Bill is that there are declarations and statements of intent in many of its Clauses. The right course for Parliament to adopt is to legislate now for the immediate financial year and to leave it to the future, the dim future, for other Parliaments to legislate as they think best for the Revenue and for our industries.

Mr. John Peyton: The Financial Secretary very helpfully started his speech by repeating the Government's broad intentions in introducing these transitional arrangements, and amending them. I do not want to indulge in a general debate and discussion of these very difficult problems, but in the limited time that remains I ask the hon. and learned Gentleman and the right hon. Gentleman the Chief Secretary to give their very careful attention to a point which, I seriously suggest, is a grave weakness in the proposals. The weakness is that their impact is haphazard. It is really a question of an unlucky dip in which companies are obliged to take part; some companies come off quite desperately badly, with others doing "Quite nicely, thank you".
I should like to give an example of the kind of difference that can possibly occur between two companies. I will not bore the Committee with the full details of the accounts, although I will gladly let the Financial Secretary or his right hon. Friend have the figures if that should be desired. The first case is of a United Kingdom resident company with all income derived from overseas, paying foreign tax of 55 per cent., distributing half the profits as dividends, the other half being reinvested overseas. The shareholders in that company will receive compensation of£88,000 for a loss of£93,000.
The second case is again that of a United Kingdom resident company. It is a United Kingdom parent company with a 100 per cent subsidiary resident overseas. The subsidiary pays foreign tax at the same rate of 55 per cent., distributes 50 per cent. of its profits, the other 50 per cent. being retained in the business for reinvestment overseas. The shareholders in that company will receive compensation of£44,000 against the same loss of£93,000. I will repeat those figures. The compensation in the one case is£88,000 and in the other it is£44,000, and the loss in both cases is£93,000. It is a quite intolerable discrepancy.
I recognise that the Government's intentions in this matter are good and sound, but it is not open for them to say, "We have done our best. We admit that there are certain discrepancies left, but we cannot do any more about it." It is incumbent on them to look very seriously at this quite appalling problem facing some very big and important companies.
You will correct me if I am wrong, Dr. King, but I understand that the Chancellor of the Exchequer's Amendment—

The Chairman: Order. If right hon. Gentlemen wish to converse, I hope that they will do so quietly.

Mr. Peyton: I understand that Amendment No. 638, in the name of the Chancellor of the Exchequer, is being taken with the Amendment moved specifically by the Financial Secretary. Is that correct?

The Chairman: Yes.

Mr. Peyton: No. 638 is being taken as well?

The Chairman: Yes. Order. I am very sorry to be late in answering. It distracts the attention of hon. Members who are speaking—and, indeed, the attention of the Chair—if right hon. Gentlemen talk loudly when having private conversations.

Mr. MacDermot: On a point of order, Dr. King. I understand that we are discussing Amendment No. 636, which I moved, together with a group of Opposition Amendments, and that you are to call Amendment No. 638 later. Have I misunderstood the position?

The Chairman: My understanding is—and I can withdraw the Amendments from discussion if it is desired—that with this group of Amendments we are also taking Government Amendments No. 637 and 638.

Mr. MacDermot: I am very content, Dr. King. I had not understood that, but I am very glad to hear it. When I moved this Amendment I did not out-line the detailed provisions of Amendments No. 637 and 638, and if there are any points in them with which hon. Members wish me to deal I will, of course, happily do so.

The Chairman: The hon. and learned Gentleman will have an occasion to do so later in this debate.

Mr. Peyton: I am obliged to you, Dr. King, and to the Financial Secretary, for clearing up the position.
I come now to a point that I find extremely difficult, and not being as deeply steeped in tax law as are so many of my right hon. and hon. Friends I proceed only with greatest wariness, and ask the Financial Secretary to give me the most lucid and clear answers the Treasury Bench can afford.
I understand that the Government intend for the first time to introduce a very serious alteration to the double taxation relief system which has been in force for so very long in this country, and intend to do so by doing away with a company's ability to deduct excess foreign tax. Paragraph 5 of Schedule 15 provides that this shall be done on a date which Parliament shall hereafter determine; in other words, Parliament will lay down in due course that, for Corporation tax purposes, on such and

such a date paragraph 7 of Schedule 16 to the Income Tax Act, 1952, shall no longer apply. That is to happen at some future date.
In the Government's Amendment No. 788 there is provision that the calculation shall be made without deduction for any unused credit for foreign tax. It therefore seems to me that the Chancellor is now doing for the purpose of Clause 79 what the Schedule appears to say will not be done until some later date. The result is that the amount of overspill that can be claimed may well be reduced. If a company is no longer allowed to take account of excess foreign tax, the unused credit for foreign tax referred to in Clause 79 will be reduced below the amount which is computed under the law as it is at present.
I hope that the Financial Secretary will give this point his attention when he replies. In particular, I would ask that between now and Report he will concentrate on the very considerable measure of injustice being inflicted on one company as against another, on one lot of shareholders as against another lot, by the very haphazard impact of the Amendment—and, indeed, of the original provisions.

Mr. MacDermot: Perhaps I ought to intervene at once to explain the provisions which I did not explain, but should have done in my opening speech. I am not seeking in any way to close the debate, not that I could do so even if I wanted to.
Turning to Amendments Nos. 637 and 638, the latter, in particular, provides three things. First, it covers tapering provisions over the new seven-year period and provides that there shall be full relief for the first three years and tapering will then take place over a four-year period instead of a three-year period. Consequently, the drop will be by fifths instead of quarters during the tapering years.
Secondly, the Amendment grants full relief for the full amount by which the tax credit and the base year exceeds the credit which would have been given if Corporation Tax had then been chargeable. It removes the restriction there was in the Bill limiting relief to the proportion of profits which would have been paid out as dividends during the year.
Thirdly, it makes three corrections of defects which have come to light in the original drafting.
The first is in favour of the taxpayer.
hope that it deals with the point raised by the hon. Member for Yeovil (Mr. Peyton). I should like to make clear that it is in favour of the taxpayer. This deals with the case where the relief period for calculating the grant on unused credit fell in the year 1965–66 but the company's income for that year was not within the charge to Corporation Tax. That would be because it was charged to Income Tax on the current year basis for that year. What the Amendment provides is that the overspill shall be completed as if the profits had been charged to Corporation Tax and not to Income Tax and Profits Tax. This will give a greater measure of overspill.
The second of the corrections is that the Amendment provides that where the foreign tax is at over 56¼ per cent., that is to say, in excess of Income Tax and Profits Tax at the current rates, the excess is to be disregarded. This is obviously right in principle, because there would not have been any effective credit for that extra tax under the old system. Thirdly, it provides that in measuring the unused credit no deduction is given for unused credit in ascertaining the income for United Kingdom tax purposes. Unless this had been done the overspill relief would put the shareholder in a company operating overseas in a more favourable position than a shareholder in a wholly domestic company. I can illustrate that with an example if hon. Members wish, but as often as not I find that a mass of figures serves rather to confuse than to clarify a point.
That, in effect, is a short outline of the effect of the provisions in Amendment No. 638 which, I hope, will be of assistance to the Committee. While I am on my feet I shall seek to reply to the specific points I have been asked in the debate so far. The hon. Member for Reading (Mr. Peter Emery) said that it had been stated in the publicity issued when these Amendments were published that they were to afford relief to the shareholder. He stressed that the moneys which will be payable will be payable to the company and that this will be relief to the company. That is absolutely

correct; it will be entirely for the company to decide. This, in part, answers the right hon. Member for Orkney and Shetland (Mr. Grimond), the Leader of the Liberal Party. There is something a little artificial in our trying to say whether the assistance given will go to help the shareholder or the company for retentions.
If the company does both we can either regard the money obtained from foreign trading sources as being money which goes to the shareholder and the assistance given to the company would help it to plough back, or we could look at the matter the other way round. As most of the complaints have been that companies will find it difficult to maintain their net dividend, the answer was made that it was hoped that this help given during transitional period would assist companies in the object of maintaining the net dividend.
We are not, of course, saying that the assistance will necessarily in every case be effective to achieve that object, because we do not intend all these transitional provisions to put overseas companies in a more favourable position than an entirely domestic United Kingdom company. The effect of Corporation Tax will largely be to assist the low distributors more than to assist the high distributors. The transitional provisions will not serve to cushion a high distributing overseas company from the full effects of the introduction of Corporation Tax.

4.45 p.m.

Mr. Grimond: If it is the Chancellor's desire, as set out in the memorandum, to help the shareholders, has the Treasury considered, when it pays this money, deeming it to have paid withholding tax? That would prevent the company gaining any advantage by withholding payment from the shareholders.

Mr. MacDermot: For the reasons I have given, we cannot say that it would be more assistance to the companies or to the shareholders. A company has committed itself to payment of a dividend and it receives assistance. It can use the moneys it receives in order to help it to maintain the dividend and the plough back.

Mr. Peyton: There seems to be a fundamental mistake here. The Government say that they want to compensate


people who have suffered and they admit that those who have suffered are the shareholders. I cannot understand why the Government are content to say that they have given everything they can and then leave the shareholders out of the calculation.

Mr. MacDermot: I did not imply that the people who have suffered are the shareholders. Some of the arguments made earlier were that the effect would be that the companies would retain their net dividends to shareholders and that this would slow down plough back and investment by the companies. It is perfectly correct to say that the effect of the relief will be to assist investment by those companies.
I was asked why the seven-year period had been selected. Originally, we selected a five-year period, which we thought on the advice we then had would be a sufficient period to help companies to tide over the effect of the introduction of this complete change in the taxation system. As a result of representations received, my right hon. Friend concluded that that was not a long enough period and that there ought to be one more year of full relief and tapering should be over seven years. That is how we arrived at the seven-year period.
A number of references have been made to the study which the F.B.I. has decided to set in motion. The suggestion is made that the extension of these transitional relief provisions was in some way attributable to the introduction of that study. That is not so. The two things are separate and not dependent upon each other in any way. The reason for the introduction is that we have been impressed with the arguments put forward as to the reasons why the original five-year proposals would not provide a sufficiently fair measure of relief. My right hon. Friend has said that he is willing to give all the assistance he properly can to the F.B.I. in any way in the researches which it is making.
We were asked what would be our attitude if the result of the inquiry were to produce new facts, new information, which might indicate need for a change the proposals which we are proposing should be in this Bill. Well, of course, vie are introducing a permanent change

into the taxation system and we must introduce in connection with that proper transitional provisions as matters stand at this time.
If, as a result of either this survey or any other—if at any time—new facts come to light which throw a new light upon the decisions which have been taken, of course we will consider them, and will reconsider the position in the light of those facts. We have taken these decisions on the basis of a judgment, which we have explained to the Committee, about the level and effect of our present overseas investment.
This leads me to the other matter which has been touched upon by a number of hon. Members, which is really going back to one of the major issues which divides the Committee, which is whether we can properly regard the level of our overseas investment in relation to our balance of payments as a purely temporary problem, or whether there is a fundamental underlying imbalance here which needs correction. We think that there is.
The right hon. Gentleman the Member for Orkney and Shetland suggested that this is primarily a Government problem rather than of private overseas investment. I would remind the Committee again of the figures. Our net balance on current account has been£25 million on average over the last 10 years. As against that we have been investing overseas in private investment alone£80 million a year on average, over three times the amount of our surplus. The total figure, Government and private, has been running at£170 million. These are consistent figures on average, year in and year out, and during these 10 years we have now run into our third balance of payments crisis and we cannot feel that this is a situation which we can just regard as something which can be dealt with by a mere temporary expedient.
So I have been drawn into what, Dr. King, you have been urging hon. Members not to do, to go back over the arguments.

The Chairman: I hope that hon. Members will not pursue the general question of overseas trade operations which we discussed on an earlier Clause.

Mr. Heath: I wonder, Dr. King, whether I may have your guidance upon one point. We are discussing Government Amendment No. 638 in conjunction with others. Are we also discussing the Amendments down to the Government Amendment, Amendments standing in the names of my hon. Friends the Members for Middleton and Prestwich (Sir J. Barlow) and the Member for Yeovil (Mr. Peyton)? Are they selected or not selected?

The Chairman: They are not selected. I am sorry if the right hon. Gentleman has not been made aware of this. There must have been a slip-up in communications.

Mr. Geoffrey Lloyd: I shall, of course, observe your Ruling, Dr. King, and merely remark that we are completely in disagreement with the Financial Secretary over overseas investment. We think that his approach is wrong.
The point I want to put is this. The Financial Secretary has said that if facts come to light later they will be taken into account, to ease the impact of this tax. I would like him to take account of the facts which we already know. I want to put to the Committee one series of facts and to ask the Financial Secretary how he thinks this matter should be dealt with.
In general, I would say that we do not at all accept his doctrine that an extension of the period of relief by two years is a generous act of the Chancellor giving extra compensation. We look at it completely differently. We think that the Chancellor has broken one of the maxims of proper taxation practice, in that he has introduced a fundamental change in the taxation system without proper prior inquiry. He should know that tax authorities in the world at large accept that a tax system, after adjustment over many years, is something which is related to the economic life of a country which practices it, and that to make a change is to run the risk of producing a very large number of anomalies.
This is the point which my hon. Friend the Member for Yeovil (Mr. Peyton) so well brought out this afternoon, and this is what I want to pursue a little.
I want to pursue it in particular with regard to what I think the Committee will agree is the most important national interest, namely, the efficiency of our great oil industry. It is natural that I should instance this. I have no financial interest in any of the companies, but for about 10 years I was the Minister responsible for this industry, including the time of the war, when it rendered such tremendous service.
I instance the effect on the two great companies which together do between one-third and one-half of the total business in oil in the world. As I have said before, oil is the commodity which, both by value and by volume, is the most important commodity entering into international trade. Therefore, the magnitude to our national interest can be appreciated.
I understand that the effect on these two great companies is absolutely different. I understand, with regard to the Shell Company, for example, that shareholders, as a result of this tax change, will he about£17 million to the bad, and I understand that under this Clause which the Chancellor is seeking to extend by another two years there would be about£10 million of relief, which itself has to bear tax of 41¼ per cent.,£4 million, and, therefore,£6 million is the net amount of relief on the loss of£17 million. That is about one-third of the loss.
With regard to the other great company, British Petroleum, the loss is£12 million and I understand that under this Clause, which is to be continued further by the Amendment, the relief is getting on to that amount.
So we have the two great companies which are, so to speak, the great twins of the British effort in the world's oil trade, the one deeply injured, and the other relieved to almost 100 per cent. This is the point I want to put to the Financial Secretary, because it is this we are seeking to improve by some of the Amendments now being considered with the Government's Amendment.

Mr. John Harvey: Without wishing, Dr. King, to trespass for one moment on your injunction to us, I would take issue with the Financial Secretary in saying that what divided us was this fundamental approach to the underlying imbalance. What really


divides us is that the same blunt instrument is being used at a time when, perhaps, some curtailment is needed and being used on investment which has already taken place. Our feeling on this side of the Committee is that one should still try to find a formula whereby one can curb new investment without our injuring the old. That is what many of us are trying to achieve by these Amendments.
It becomes more and more difficult, with a Bill which changes its character day by day and night by night or early morning by early morning, for a layman to follow all the various changes which are taking place, and the various commitments the Government have given to re-examine things between now and Report.
What worries us is the Financial Secretary's statement of a few moments ago that one of the reasons for Amendment No. 638 is to correct defects which have come to light in the original drafting. One cannot help wondering how many other defects there are in the original drafting, and, indeed, how many of them will go into the Act as a result of the pace at which this enormous Measure is being forced through, and because of the lack of consideration which so much of it is receiving, despite all the consideration which we are trying to give it.
I ask the Financial Secretary whether I am right, as I think I am, in assuming that it is still the case that overspill relief is being calculated on the basis which compares foreign tax credit received in a previous year with credit which would have been received if gross overseas income for that year had been charged to Corporation Tax at a rate which the Chancellor still has to fix for the current year or a future year, when the circumstances of the company can, of course, be very different from those in which the original profit was made. Despite the relief that is now to be granted, it seems that if any of this relief is given to the shareholders in a company, the Government will immediately get back 40 per cent. of it.

5.0 p.m.

Mr. Eric Lubbock: Can the hon. Gentleman tell me where in the Bill he finds the levying of Corporation Tax on this overspill relief?

Mr. Harvey: I was just asking the Financial Secretary whether I was right in understanding that that was the case. This is how many people outside the Committee see the position, and it would be of great help if the point could be clarified. If the case that I have outlined is not correct many people will be glad to hear it.
That brings me to the point made by my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd), that even under such concessions as have been made—I dislike having to use that word, but it is the simplest way of describing the fact that the Government proposes to take less from people than they first thought of taking—it remains true that some companies will be treated vastly differently from others. Companies which to all intents and purposes earn their money in the same way, and contribute the same amount to the balance of payments, will, as my right hon. Friend suggested, he treated differently.
My right hon. Friend cited the two giants of the oil industry, but this sort of pattern could be repeated again and again in the whole structure of our economy, with varying effects on overseas investment, and, whatever may divide us, surely we are all concerned to see that the levels of overseas investment already made are maintained and are able to make their contribution to our future balance of payments.

Mr. Lubbock: I want to follow the point made by my right hon. Friend the Member for Orkney and Shetland (Mr. Grimond) when he referred to paragraph 2 of the Chancellor's memorandum which was issued when the new Amendments were put down. The sense of this part of the memorandum was that in putting down the Amendments the Government were helping these companies to maintain their dividends. Would the hon. and learned Gentleman be good enough to look at the example of an overseas company which is given on page 30 of the White Paper, The Corporation Tax, Cmnd. 2646, and tell us whether this company—I did not select it, it was the Government's choice—is able to maintain its dividends?
Perhaps I could through the figures for the benefit of anyone in the Committee who has not got the White Paper before


him. This is a company which is trading wholly overseas and has selected 1963–64 as its base year. Profits in that year were£20,000. It paid overseas tax on them at 50 per cent. amounting to£10,000. Its United Kingdom tax bill would have been 53¾ per cent. of£20,000, that is 7s. 9d. Income Tax plus 15 per cent. Profits Tax. That comes to£10,750, against which it would have received a credit of£10,000 for overseas tax. As I understand, it would, therefore, have been liable to only£750 taxation in this country.
The example says that it paid a net dividend, after tax, of£6,000 to its shareholders, so we have£10,000 paid to the overseas Government,£750 paid to the United Kingdom Government, and£6,000 net dividends to shareholders, leaving a retention of£3,250. It goes on to say:
If the rate of Corporation Tax is 40 per cent., the amount which it would have paid on the income of the base year would have been£8,000,"—
that is 40 per cent. of£20,000—
and the relief is a proportion of the amount by which the credit actually given"—
which w as£10,000—
exceeds£8,000, i.e., a proportion of£2,000.
After giving the arithmetic on this it comes out with a figure of£1,297 relief. I would be grateful if the Financial Secretary would deal with the point about Corporation Tax on the relief, because I have looked at Schedule 15, which, I think, refers to this, but I am at a loss to make head or tail of it.
If the company paid the same dividend of£6,000 net after tax, it would have to account for it to the Inland Revenue. I have grossed that up at 8s. 3d., and according to my calculation it is£10,210. Thus, if the company makes the same profit in the year that we are considering, and the rate of taxation in the overseas country is still the same, it is unable to maintain its dividend because the sum of the overseas taxation and the grossed-up dividend paid in this country comes to more than£20,000, leaving aside the relief amounting to£1,297. If the Corporation Tax is levied on that, it reduces to£780, and the company is just about able to maintain its dividend by paying out the whole of its profits and having no retentions whatsoever.
I think that in considering this matter we ought to make a comparison on the

basis that everything else is equal, because the Financial Secretary said that one can look at this relief as being given to the shareholder, or, alternatively, as being put to retentions. I think that the hon. and learned Gentleman ought to deal with the overall effect, assuming that everything else—profits, and the amount of dividend which the company is paying—is the same as it was in the base year.

Sir John Barlow: The object of the Chancellor's Amendment is to extend the death period of overseas trading corporations by five years, and it has been suggested that this should be considered as a great concession. I do not regard it as that at all. It merely extends for a short time the period of strangulation of many of these companies.
I have tabled two small Amendments which would improve the Bill enormously, but I gather that they are not likely to be taken to a Division. It seems to me that the abolition of O.T.C.s. and the period through which they will go before their complete abolition, have been insufficiently considered by the Government, who have received representations from different influential quarters to show the good work which these O.T.C.s do. Special tax legislation for them was provided in the Finance Bill of 1957, and it has worked admirably.
The Financial Secretary has pointed out more than once the increasing amount of private capital going abroad and the relatively small amount of revenue coming back. This may be true in certain cases, but if he wants to remedy the situation I suggest that the method proposed by the Government is not the proper way to do it. Last week, I quoted large groups of companies which invested many years ago. By ploughing back profits they have modernised and increased their holdings abroad, and they now bring in very substantial sums of revenue every year, not only by way of dividends, but by way of export orders for machinery, technical help, banking, insurance, and so on.
That is of very great value. If the Government wish to prevent too much private capital going abroad—and I sympathise with them in this, in certain cases—this is not the way to do it. The proposal to extend the death period from


five to seven years in no way meets the situation.
This may well lead to retaliation by many other countries. It may lead to a tax war, which would be very unfortunate. We know the importance of tax wars. We have seen them in the past, and know how dangerous they can be. This method of O.T.C.s, which has been working satisfactorily for several years, is to be strangled in another seven years. I urge the Government to consider other means of meeting this large export of private capital.
Furthermore, we may lose important raw materials. They could easily go to other countries. We have little time to discuss this subject today, and I merely urge the Government to consider it again before Report, because there could be severe consequences.

Mr. MacDermot: I apologise for rising a third time. I do so purely to answer the specific question whether the payments of this relief would themselves be subject to Corporation Tax in the hands of a company. The answer is, "No". It is to be found in lines 35 and 36, on page 105. The right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd) drew attention to a point about which there has been considerable publicity, namely, the different effect of this proposal—owing to the different structure of the companies—upon B.P. and Shell.
It has been said throughout, in respect of both our original proposals and our latest proposals, that B.P. derives proportionately more advantage than does Shell. This is an illustration of the point to which the hon. Member for Yeovil (Mr. Peyton) drew attention originally. It is perhaps inevitable that a scheme of this kind operates somewhat haphazardly and has different effects upon companies in different situations.
I have been trying to follow the figures mentioned in the case referred to by the hon. Member for Orpington (Mr. Lubbock), but I could not see the reason which produced the result. I shall be glad to study it further, however, and if the hon. Member would like to give me further information I shall be happy to consider it. I concede that any major tax change of this kind—whatever we do by way of relief—will assist some companies more than others. It was for this

sort of reason that we felt it right to extend the relief, so as to give a fairer measure of that relief to companies who were particularly badly hit before.

Mr. Lubbock: Can the hon. and learned Gentleman say whether the hypothetical company quoted in the Government's own White Paper would be able to maintain its dividends?

Mr. MacDermot: I have not got the White Paper with me. I should like to go into that matter and write to the hon. Member, if I do not have an opportunity of answering the point in Committee today.

Mr. John Harvey: Will the hon. and learned Gentleman answer the point that I raised? I was not in any doubt about Corporation Tax. I asked whether, if a company passed on all of that relief to its shareholders, Income Tax would mop up 40 per cent. of the relief and bring it hack to the Government.

Mr. MacDermot: Yes. That is perfectly clear. If we regard the relief as money passed on to the shareholders, in so far as it is passed on to a shareholder it will become subject to tax in his hands, depending upon what his rate of taxation is. For the reasons that I have given, one can equally regard this as money that would help a company if it were retained.

Sir Edward Boyle: We have been discussing Government Amendments for nearly one and a half hours, and the Committee may feel that the time has come to reach a conclusion. Having addressed the Committee at some length last week on the main principle of this subject I do not propose to speak at length today, but it is fair to say that ever since the introduction of the Budget—and certainly since the publication of the Finance Bill—particularly strong pressure has been put upon the Chancellor to ease the position of companies operating abroad. It cannot be disputed that the Government Amendments that we have been discussing this afternoon will have the effect of softening the blow for a number of those companies which are most severely affected.
I do not wish to underrate the importance of another aspect of these Amendments, namely, the decision that where credit is paid in the first three years this


will be the full amount and not the proportion related to the dividends paid. Many criticisms were specifically related to that point. None the less, it should he made clear that the fact that these reliefs have been given and these important changes have been made in this Clause in no way alters our general feeling about the operation of the Corporation Tax in its overseas form.
The Financial Secretary said one thing that very much pin-points this fact, namely that the purpose of these transitional reliefs was to give the companies concerned time and opportunity to adjust themselves. I want it to be absolutely clear that quite apart from the differing treatment of different companies these proposals mean a major change, and are bound to affect most severely a number of corporations which are inevitably concerned with overseas investment and have always been in that business.
From the beginning the criticism has been that we are dealing with a Measure which does not selectively control future overseas investment but cracks down indiscriminately on the investment that already exists, not least in the case of those business which are bound to be particularly concerned with overseas investment—indeed, whose whole raison d'être is overseas investment.
5.15 p.m.
It is worth considering what is likely to happen during this transitional period. I put it strongly to the Government that we must approach this subject in a critical frame of mind and consider all the possibilities. First, I am certain—and the closing words of the Financial Secretary confirm my view—that in future Finance Bills we shall have to do a considerable amount of mopping up within the ambit of what has been proposed, although I hope that it will not be long before we are back in office and are able to consider the whole question of the right scheme for business taxation. Let everyone be clear that even within the ambit of what is proposed many anomalies and very difficult cases are bound to present themselves. My right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) has mentioned one of particular importance.
I mentioned last week, as my hon. Friend the Member for Walthamstow, East (Mr. John Harvey) pointed out today, that retaliation might take place during this transitional period. It is often a fault of the party opposite that it is somewhat insular and isolationist in its approach to these matters. It forgets the implications of its proposals for other countries, and their determination to see that we do not get certain advantages for ourselves from them.
During the whole of the next few years, and certainly in this transitional period, it will become more and more apparent that science and technology are of international importance and that, in general, a "little England" approach to the question of overseas investment cannot make sense. In my opinion, these points show that we are fundamentally opposed, as I have said on many occasions, to the operation of Corporation Tax so far as it affects companies trading overseas. We are fundamentally opposed to what is proposed in the Bill and, also, we believe that, during this transitional period, many of the disadvantages of the Government's proposals will become more apparent.
There is much more which I could say. For example, a number of hon. Members have touched on the fact that it may no longer be possible to expense-out present unrelieved taxation. One point on which I do not necessarily insist upon an answer now is one of which I will put a detail to the Financial Secretary. I am not clear what has happened to subsection (2) of the original Clause 79, but perhaps he might find a chance to answer that on a future Amendment. Meanwhile, let us recognise that the reliefs which we have been discussing during the past hour and a half are not unimportant. They will soften the blow. They meet a number of representations which have been made, but, none the less, we are discussing simply the suspended sentence of death.
We agree with all the criticisms made by my hon. Friend the Member for Middleton and Prestwich and we repeat our entire dissatisfaction with the basic scheme which has given rise to the need for these transitional and tapering proposals.

Amendment agreed to.

Sir E. Boyle: I beg to move Amendment No. 601, in page 104, line 15, at the end to insert:
adjusted where appropriate to take account of any difference between the rates of United Kingdom taxes by reference to which the credit for foreign tax was calculated in the base year and the said current charge to corporation tax.
This is a technical but, I think, quite important Amendment, which I hope to be able to explain fairly briefly to the Committee. The object of the Amendment is to secure that, for the purpose of calculating the transitional and tapering relief which we are considering in this Clause, we should make a true comparison between the foreign tax credit each rear allowed on the company's income is its chosen base year and the credit which would have been allowed in that rear if Corporation Tax had then been in force. As the Clause is at present drafted, the relief due under subsection (1) is the difference between the credit for foreign tax in the base year and the current charge of Corporation Tax.
Our case is that these two amounts should be calculated on the same basis, but this is not so under the Clause as it stands. What the Clause and the White Paper—which I shall be quoting from—say is that these two amounts may be calculated on the same income, which is not the same thing. The point is, surely, that if Corporation Tax had been in force in the base year, the amount of income assessable would not have been the same. It would have been less in all those cases where the foreign rate of tax exceeded the Corporation Tax rate. The reason for this is that, under the law as it will have applied in the base year and still applies at the moment, the amount of income assessable—the chargeable income, if hon. Members prefer—would have been reduced by deducting from it the amount of foreign tax for which credit could not be claimed.
If this had been done, the Corporation Tax chargeable on the overseas income would have been appreciably lower than the figure arrived at under the Clause as it is drafted, and the overseas overspill relief provided for by this Clause would be correspondingly higher. Let me give an example, which I will base on the simplified figures given in the Chancellor's White Paper. That is to say, I will consider, as the White Paper

does on page 30, the case of a company with a foreign income of£20,000, paying foreign tax at 50 per cent., that is£10,000, and assuming a Corporation Tax rate, as the White Paper does, of 40 per cent.
I should like to make my point clear by taking the position of the company first of all in the base year, then tinder Clause 79 as at present drafted, and, thirdly, as it would be under my Amendment. In the base year, I think that we shall be on common ground. The company would have paid Income Tax and Profits Tax on an income of£20,000 at a rate of 53¾ per cent. It would have paid tax of£10,750 and, deducting credit for foreign tax of£10,000, it would have paid, therefore,£750 in tax. I come secondly, to Clause 79 as drafted. What the Chancellor says is that a Corporation Tax of 40 per cent. on an income of£20,000 amounts to£8,000 and that the excess, for purposes of Clause 79(1), is£10,000, the total of the company's foreign tax in the base year minus£8,000—that is to say£2,000.
We believe that that approach is not sufficient and our case is that if the United Kingdom rate of tax in the base year had been 40 per cent., that is to say, less than the foreign rate of 50 per cent., the amount of foreign tax for which credit could not be claimed would have been deducted in arriving at the amount of income assessable. The unrelieved foreign tax would have amounted, given the figures which I am assuming in this example, to£3,333, so that the assessable income would, in practice, have been not£20,000 but£16,667. At 40 per cent., the tax payable on that income would have been£6,667, which leaves us with an excess, or overspill, not of only£2,000 as provided for in the Bill but of£10,000 minus£6,667, which would have been£3,333.
If hon. Members ask, as they reasonably might, how this figure of unrelieved foreign tax is arrived at under the present system—it is a question which I asked myself—the answer is, if the Committee will forgive me, that this is a matter of fairly straightforward O-level algebra. If one still takes the Chancellor's model and says that£X is unrelieved foreign tax and£Y the element of foreign tax for which, under our existing system, credit is given, then X plus Y must equal


£10,000, which is the total of foreign tax. Also, because the credit cannot be bigger than the United Kingdom tax assessment, the Corporation Tax of 40 per cent. or two-fifths will mean that Y must be equal to two-fifths of£20,000 minus X.
I apologise to the Committee, but I thought that I would explain this so as to show that I am not making up this figure of unrelieved foreign tax out of my head. There is a rationale for it. If we reduce the calculation on paper to two simultaneous equations:
X + Y =£10,000
Y = ⅔ (£20,000— X)
it will lead to the result that
3X =£10,000
or that X, the unrelieved foreign tax, is£3,333—

Mr. Grimond: It would facilitate the work of the Committee if the right hon. Gentleman would bring in a blackboard.

Sir E. Boyle: I have finished these calculations, but I had been puzzled by this myself and thought I should try to explain it to the Committee.
Coming back to the argument which I was developing just now, if the Corporation Tax had been in force for the base year the chargeable income would have been, as I have said, not£20,000 but£16,667. The excess or overspill to which the Clause relates would have been not just£2,000, as provided for in the Clause, but rather more than£3,000.
I claim that there is a real point of importance here. After all, the whole purpose of the overspill relief over the transitional reliefs which we are now considering is that, during the first few years when relief is at the full rate, the company should be left as near its present position as possible. I think that the principle which I have tried, I hope reasonably coherently, to explain—that when we are considering this relief we ought to consider the relevant amounts on the same basis and not just calculate them on the same income—is a point of substance. I therefore claim that the calculation of current charge to Corporation Tax for the purpose of Clause 79 should be based, in cases where the foreign rate of tax exceeds the Corporation Tax rate, not on the actual assessment in the base year but on what that assessment would

have been had the tax then been payable at Corporation Tax rate.
This may seem a technical Amendment, but what I am proposing, I feel, is only right and equitable and is surely relevant to the detail of the scheme which the Government are putting forward in the Clause.

5.30 p.m.

Mr. MacDermot: I hope that I can be as successful as the right hon. Member for Birmingham, Handsworth (Sir E. Boyle) was in making myself crystal clear to the Committee. The right hon. Gentleman has blinded us with what I might call O-level algebra. I hope that my reply does not sound too much like variable geometry. Before I turn to the Amendment, may I answer a question he asked me almost in parentheses at the end of the debate on the last Amendment. He asked me what has happened to subsection (2). I think that he will find it now in subsection (4) as amended.
Turning to the much simpler questions the right hon. Gentleman put to me, I think that the Amendment is based on a misconception of what would be the fair comparison. As I grasp the right hon. Gentleman's point, it is this. Under the existing law, the taxpayer who draws income from overseas has his statutory income for United Kingdom tax purposes determined by deducting from the gross amount of the foreign income any unrelieved overseas tax. In practice, I understand that the deduction is arrived at by accountants for companies by grossing up the net foreign income received. The deduction for unrelieved tax is then the difference between the grossed up amount of net income and the foreign income before payment of the foreign taxes.
The proposal in the Amendment is that this same principle should be applied in arriving at the current charge to Corporation Tax on the base year's income with which the credit given for the base year is to be compared. If I can put it in terms of an example, I ask hon. Members to suppose that a company in its base year had earned profits of£1,000 taxed overseas at 50 per cent. Its credit for the base year would then have been£500. The difference between this and Corporation Tax at 40 per cent. on£1,000, if I have followed the right hon. Gentleman, is£100. This is the amount


of relief which would be due under my right hon. Friend's proposals.
The thesis in the Amendment is that, if Corporation Tax had been in force in the base year, there would then have been a deduction in computing the statutory income for Corporation Tax purposes, so that the statutory income would have been, not£1,000, but£500 grossed up at 40 per cent., which I understand is£833, on which Corporation Tax would be£333. The overspill relief then becomes the difference between£500 and£333, namely,£167, as opposed to the£100.
The fallacy of this argument is that, although at the notional charge to Corporation Tax there would admittedly be unrelieved tax in relation to the company's tax liability as such, there is, under my right hon. Friend's new proposals, no tax unrelieved at the end of the day, because the company is given an overspill payment equal to the amount of overseas tax for which it would, under the notional Corporation Tax calculation, not get credit. So all the overseas tax is effectively relieved, and to give a deduction for so-called unrelieved tax would, in fact, be to give the relief twice over.
It can easily be shown also that the proposal would be too generous by a comparison between a company operating wholly overseas and one operating wholly in the United Kingdom. This is a point of which I think the right hon. Gentleman lost sight when he said that the object should be to leave the overseas trading company in as near its present position as possible for the first three years of the transition period. That must be subject to the qualification that it should not be put into a more favourable position in relation to the introduction of Corporation Tax than a United Kingdom company would be.
I can give figures to illustrate this point, if the Committee wants them, but perhaps hon. Members have had a surfeit of figures at the moment. The point of principle involved is that there would be no justification for putting the overseas company in a better position than its United Kingdom counterpart.
For these reasons, I must advise the Committee to reject the Amendment.

Mr. Nicholas Ridley: I would not attempt for a moment to go into the realms of algebra entered by my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle) and the Financial Secretary. Subsection (1, b) is incredibly complicated. Very few ordinary company accountants will understand what it is all about. I ask the Financial Secretary to try to think of a slightly more simple basis for working out this relief. The provision is hypothetical in two ways, because we do not know in any given year what the rate of Corporation Tax will be, nor do we know what the rate of foreign tax will be in any given year, Both of these factors are variable. So the Government have landed a company with two variables for the future which will make it extremely difficult for there to be any prediction as to what the relief may be in years to come. It is bad enough when there is one variable. When there are two variables it is much worse.
The figure is perhaps unfairly high. The present rate of Income Tax and Profits Tax is 56¼ per cent.; that is under the Socialist Government now existing. Under the Conservative Government not long ago the rate was only 53¾ per cent., but the Chancellor of the Exchequer put up Income Tax. In the past year, which is the year we have been considering, the rate was only 53¾per cent. That should surely allow a company to use that lower rate in computing its profits for the base year. This would give a lower rate of tax, if the Government were to adopt such a solution.
The next objection I have to the present system is this. As tax rates rise, the value of the relief will be eroded. If the Corporation Tax is at 40 per cent.—it may rise to 42 per cent. or 45 per cent., because right hon. Members opposite are famous for their ability to screw taxes up year by year—and at the same time Income Tax rises the value of the relief will dwindle in two senses. It will dwindle, first, in the hands of the company. It will dwindle, secondly, because any extra payments in the form of dividends to the shareholders will be reduced if Income Tax rises.
Not only is the whole system extremely complicated. It is rather unfair and it is very vulnerable if taxes rise again in future. I support what my right hon.


Friend said. I hope that the Financial Secretary will think again about this subsection and see if he can devise something more simple and something which will more acceptably grant exactly the same terms of relief as at present, which I think the whole Committee feels is the object it would like to achieve during the transitional period.

Mr. Peyton: As I understand, the Chancellor and the Government have made use of the idea of a notional rate of tax in order to relieve the overseas trading corporation, but this does not cover the company which largely trades overseas in a non-technical sense. Would the Chancellor be good enough to look at this point and consider some of the companies—and Shell has been particularly mentioned—to see whether the device which he used to help overseas trading corporations could be used to help these companies. They are in an extraordinary position which I am sure the Government did not intend them to be in, and it would be helpful if the Government explored that line.

Mr. Geoffrey Hirst: The Financial Secretary has been amiable, but I am more perplexed now than I was before he spoke. The question of double relief is begging the point, unless I am slow on the uptake this afternoon. The comparison which my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle) made was between the situation as it is and as it would be by reason of Corporation Tax. At the moment income derived from overseas trading companies would have been grossed up for tax purposes on the basis of an Income Tax and Profits Tax rate of something like 53¾ per cent., but for Corporation Tax they surely should be grossed up by reference to the Corporation Tax rate. The Clause is meant to be a relief Clause and is not supposed to impose a penalty. As I see it, it puts one more difficulty in the way of overseas trading companies.
If this is the Government's policy, and basically it is, we should know about it, but I am surprised that it should apply

in this Clause. I should like clarification of this. If it is the Government's policy to substantially under-rate relief in the process of dealing with the Clause we ought to know, and the companies concerned should know. If it is not, we should examine the matter more closely. I am not satisfied with the explanation given in reply to the extraordinarily clear speech of my right hon. Friend.

Mr. Peter Emery: Although my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle) said that this is a technical Amendment, there is no doubt in anybody's mind that it is very important and is particularly relevant to a number of firms. The Financial Secretary followed through a slightly different example from that given by my right hon. Friend, but we come down basically to the fact that the income consists of dividends from an overseas country and they would have been grossed up for tax purposes in the base year by reference to Income Tax and Profits Tax rates totalling 53.75 per cent. We say that for Corporation Tax purposes they should be grossed up by reference to the Corporation Tax rate which would have been applicable.
Unless the Amendment is made we say that the base year gross income will be used for this purpose of calculating a notional Corporation Tax charge and that that relief will be substantially understated and overspill relief will not be properly given. The difference between the two sides of the Committee on this matter is that the Government hold to their argument that this must be exactly the same for companies trading in this country as for companies trading overseas. We have never accepted that argument, which is basically the only argument that the Financial Secretary has given to the Committee for opposing the Amendment, and therefore I would advise my hon. and right hon. Friends to divide the Committee.

Question put, That those words be there inserted:—

The Committee divided: Ayes 284, Noes 287.

Division No. 194.]
AYES
[5.44 p.m.


Alison, Michael (Barkston Ash)
Amery, Rt. Hn. Julian
Atkins, Humphrey


Allan, Robert (Paddington, S.)
Anstruther-Gray, Rt. Hn. Sir W.
Awdry, Daniel


Allason, James (Hemel Hempstead)
Astor, John
Baker, W. H. K.




Balniel, Lord
Gardner, Edward
Marten, Neil


Barber, Rt. Hn. Anthony
Gibson-Watt, David
Mathew, Robert


Barlow, Sir John
Giles, Rear-Admiral Morgan
Maude, Angus


Batsford, Brian
Gilmour, Ian (Norfolk, Central)
Mawby, Ray


Beamish, Col. Sir Tufton
Glover, Sir Douglas
Maxwell-Hyslop, R. J.


Bell, Ronald
Godber, Rt. Hn. J. B.
Maydon, Lt.-Cmdr. S. L. C.


Bennett, Sir Frederic (Torquay)
Goodhart, Philip
Meyer, Sir Anthony


Bennett, Dr. Reginald (Gos &amp; Fhm.)
Goodhew, Victor
Mills, Peter (Torrington)


Berkeley, Humphry
Gower, Raymond
Mills, Stratton (Belfast, N.)


Berry, Hn. Anthony
Grant, A[...]hony
Miscampbell, Norman


Biffen, John
Grant-Ferris, R.
Mitchell, David


Biggs-Davison, John
Gresham Cooke, R.
Monro, Hector


Bingham, R. M.
Grieve, Percy
More, Jasper


Birch, Rt. Hn. Nigel
Griffiths, Eldon (Bury St. Edmunds)
Morrison, Charles (Devizes)


Black, Sir Cyril
Griffiths, Peter (Smethwick)
Mott-Radclyffe, Sir Charles


Blaker, Peter
Grimond, Rt. Hn. J.
Munro-Lucas-Tooth, Sir Hugh


Bossom, Hn. Clive
Gurden, Harold
Murton, Oscar


Bowen, Roderic (Cardigan)
Hall, John (Wycombe)
Neave, Airey


Box, Donald
Hall-Davis, A. G. F.
Nicholls, Sir Harmar


Boyd-Carpenter, Rt. Hn. J.
Hamilton, Marquess of (Fermanagh)
Nicholson, Sir Godfrey


Boyle, Rt. Hn. Sir Edward
Hamilton, M. (Salisbury)
Noble, Rt. Hn. Michael


Braine, Bernard
Harris, Frederic (Croydon, N.W.)
Nugent, Rt. Hn. Sir Richard


Brewis, John
Harris, Reader (Heston)
Onslow, Cranley


Brinton, Sir Tatton
Harrison, Brian (Maldon)
Orr, Capt. L. P. S.


Brooke, Rt. Hn. Henry
Harrison, Col. Sir Harwood (Eye)
Orr-Ewing, Sir Ian


Brown, Sir Edward (Bath)
Harvey, Sir Arthur Vere (Macclesf'd)
Osborn, John (Hallam)


Bruce-Gardyne, J.
Harvey, John (Walthamstow, E.)
Osborne, Sir Cyril (Louth)


Bryan, Paul
Harvie Anderson, Miss
Page, John (Harrow, W.)


Buck, Antony
Hastings, Stephen
Page, R. Graham (Crosby)


Bullus, Sir Eric
Hawkins, Paul
Pearson, Sir Frank (Clitheroe)


Burden, F. A.
Hay, John
Peel, John


Butcher, Sir Herbert
Heald, Rt. Hn. Sir Lionel
Percival, Ian


Buxton, Ronald
Heath, Rt. Hn. Edward
Peyton, John


Campbell, Gordon
Hendry, Forbes
Pickthorn, Rt. Hn. Sir Kenneth


Carlisle, Mark
Higgins, Terence L.
Pike, Miss Mervyn


Cary, Sir Robert
Hill, J. E. B. (S. Norfolk)
Pitt, Dame Edith


Channon, H. P. G.
Hirst, Geoffrey
Pounder, Rafton


Chataway, Christopher
Hobson, Rt. Hn. Sir John
Powell, Rt. Hn. J. Enoch


Chichester-Clark, R.
Hogg, Rt. Hn. Quintin
Price, David (Eastleigh)


Clark, Henry (Antrim, N.)
Hooson, H. E.
Prior, J. M. L.


Clark, William (Nottingham, S.)
Hopkins, Alan
Pym, Francis


Clarke, Brig. Terence (Portsmth, W.)
Hordern, Peter
Quennell, Miss J. M.


Cole, Norman
Hornsby-Smjth, Rt. Hn. Dame P.
Ramsden, Rt. Hn. James


Cooke, Robert
Howard, Hn. G. R. (St. Ives)
Rawlinson, Rt. Hn. Sir Peter


Cooper-Key, Sir Neill
Hunt, John (Bromley)
Redmayne, Rt. Hn. Sir Martin


Curdle, John
Hutchison, Michael Clark
Rees-Davies, W. R.


Corfield, F. V.
Irvine, Bryant Godman (Rye)
Renton, Rt. Hn. Sir David


Costain, A. P.
Jenkin, Patrick (Woodford)
Ridley, Hn. Nicholas


Courtney, Cdr. Anthony
Jennings, J. C.
Ridsdale, Julian


Craddock, sir Beresford (Spelthorne)
Johnson smith, G. (East Grinstead)
Roberts, Sir Peter (Heeley)


Crawley, Aidan
Johnston, Russell (Inverness)
Robson Brown, Sir William


Crosthwaite-Eyre, Col. Sir Oliver
Jones, Arthur (Northants, S.)
Rodgers, Sir John (Sevenoaks)


Crowder, F. P.
Joseph, Rt. Hn. Sir Keith
Roots, William


Cunningham, Sir Knox
Kaberry, Sir Donald
Royle, Anthony


Curran, Charles
Kerr, Sir Hamilton (Cambridge)
St. John-Stevas, Norman


Currie, G. B. H.
Kershaw, Anthony
Scott-Hopkins, James


Dalkeith, Earl of
Kilfedder, James A.
Sharples, Richard


Dance, James
Kimball, Marcus
Shepherd, William


Davies, Dr. Wyndham (Perry Barr)
King, Evelyn (Dorset, S.)
Sinclair, Sir George


d'Avigdor-Goldsmid, Sir Henry
Kirk, Peter
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Dean, Paul
Lagden, Godfrey
Smyth, Rt. Hn. Brig. Sir John


Deedes, Rt. Hn. W. F.
Lambton, Viscount
Spearman, Sir Alexander


Digby, Simon Wingfield
Lancaster, Col. C. G.
Speir, Sir Rupert


Dodrts-Parker, Douglas
Langford-Holt, Sir John
Stainton, Keith


Doughty, Charles
Legge-Bourke, Sir Harry
Stanley, Hn. Richard


Douglas-Home, Rt. Hn. Sir Alec
Lewis, Kenneth (Rutland)
Steel, David (Roxburgh)


Drayson, G. B.
Litchfield, Capt. John
Stodart, Anthony




Stoddart-Scott, Col. Sir Malcolm


du Cann, Rt. Hn. Edward
Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfield)
Studholme, Sir Henry


Eden, Sir John
Lloyd, Ian (P'tsm'th, Langstone)
Summers, Sir Spencer


Elliot, Capt. Walter (Carshalton)
Lloyd, Rt. Hn. Selwyn (Wirral)
Talbot, John E.


Elliott, R. W.(N'c'tle-upon-Tyne,N.)
Longden, Gilbert
Taylor, Edward M. (G'gow.Cathcart)


Emery, Peter
Loveys, Walter H.
Taylor, Frank (Moss Side)


Errington, Sir Eric
Lubbock, Eric
Teeling, Sir William


Eyre, Reginald
Lucas, Sir Jocelyn
Temple, John M.


Fair, John
McAdden, Sir Stephen
Thatcher, Mrs. Margaret


Fell, Anthony
Mackenzie, Alasdair (Ross&amp;Crom'ty)
Thomas, Sir Leslie (Canterbury)


Fisher, Nigel
Mackie, George V. (C'ness &amp; S'land)
Thomas, Rt. Hn. Peter (Conway)


Fletcher-Cooke, Charles (Darwen)
Maclean, Sir Fitzroy
Thompson, Sir Richard (Croydon,S.)


Fletcher-Cooke, Sir John (S'pton)
Macleod, Rt. Hn. Iain
Thorneycroft, Rt. Hn. Peter


Foster, Sir John
McMaster, Stanley
Tiley, Arthur (Bradford, W.)


Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)
McNair-Wilson, Patrick
Tilney, John (Wavertree)


Fraser, Ian (Plymouth, Sutton)
Maginn[...]s, John E.
Turton, Rt. Hn. R. H.


Galbraith, Hn. T. G. D.
Maitland, Sir John
Tweedsmuir, Lady


Gammans, Lady
Marples, Rt. Hn. Ernest
van Straubenzee, W. R.







Vaughan-Morgan, Rt. Hn. Sir John
Weatherill, Bernard
Wolrige-Gordon, Patrick


Vickers, Dame Joan
Webster, David
Wood, Rt. Hn. Richard


Walder, David (High Peak)
wells, John (Maidstone)
Woodhouse, Hon. Christopher


Walker, Peter (Worcester)
Whitelaw, William
Woodnutt, Mark


Walker-Smith, Rt. Hn. Sir Derek
Williams, Sir Rolf Dudley (Exeter)
Yates, William (The Wrek[...]n)


Wall, Patrick
Wills, Sir Gerald (Bridgwater)
Younger, Hn. George


Walters, Dennis
Wilson, Geoffrey (Truro)



Ward. Dame Irene
Wise, A. R.
TELLERS FOR THE NOES:




Mr. McLaren and Mr. MacArthur




NOES


Abse, Leo
Evans, Ioan (Birmingham, Yardley)
Lee, Rt. Hn. Frederick (Newton)


Albu, Austen
Fernyhough, E.
Lee, Miss Jennie (Cannock)


Allaun, Frank (Salford, E.)
Finch, Harold (Bedwellty)
Lever, Harold (Cheetham)


Alldritt, Walter
Fitch, Alan (Wigan)
Lever, L. M. (Ardwick)


Allen, Scholefield (Crewe)
Fletcher, Sir Eric (Islington, E.)
Lewis, Arthur (West Ham, N.)


Armstrong, Ernest
Fletcher, Ted (Darlington)
Lewis, Ron (Carlisle)


Atkinson, Norman
Fletcher, Raymond (Ilkeston)
Lipton, Marcus


Bacon, Miss Alice
Floud, Bernard
Lomas, Kenneth


Bagier, Gordon A. T.
Foley, Maurice
Loughlin, Charles


Barnett, Joel
Foot, Michael (Ebbw Vale)
Mabon, Dr. J. Dickson


Baxter, William
Ford, Ben
McBride, Neil


Beaney, Alan
Fraser, Rt. Hn. Tom (Hamilton)
MacCo[...]l, James


Bellenger, Rt. Hn. F. J.
Freeson, Reginald
MacDermot, Niall


Bence, Cyril
Galpern, Sir Myer
McGuire, Michael


Benn, Rt. Hn. Anthony Wedgwood
Garrett, W. E.
Mc[...]innes, James


Bennett, J. (Glasgow, Bridgeton)
Garrow, A.
McKay, Mrs. Margaret


Binns, John
George, Lady Megan Lloyd
Mackenzie, Gregor (Rutherglen)


Bishop, E. S.
Ginsburg, David
Mackie, John (Enfield, E.)


Blackburn, F.
Gourlay, Harry
McLeavy, Frank


Blenkinsop, Arthur
Gregory, Arnold
MacMillan, Malcolm


Boardman, H.
Grey, Charles
Mahon, Peter (Preston, S.)


Boston, T. G.
Griffiths, David (Rother Valley)
Mahon, Simon (Bootle)


Bowden, Rt. Hn. H. W. (Leics, S.W.)
Griffiths, Rt. Hn. James (Llan[...]lly)
Mallalieu,J.P.W.(Huddersfield,E.)


Boyden, James
Griffiths, Will (M'chester, Exchange)
Manuel, Archie


Braddock, Mrs. E. M.
Gunter, Rt. Hn. R. J.
Mapp, Charles


Bradley, Tom
Hale, Leslie
Marsh, Richard


Bray, Dr. Jeremy
Hamilton, James (Bothwell)
Mason, Roy


Brown, Rt. Hn. George (Belper)
Hamilton, William (West Fife)
Maxwell, Robert


Brown, Hugh D. (Glasgow, Provan)
Hamling, William (Woolwich, W.)
Mayhew, Christopher


Brown, R. W. (Shoreditch &amp; Fbury)
Hannan, William
Mellish, Rob[...]rt


Buchan, Norman (Renfrewshire, W.)
Harrison, Walter (Wakefield)
Mendelson, J. J.


Butler, Herbert (Hackney, C.)
Hart, Mrs. Judith
Mikardo, Ian


But[...]er, Mrs. Joyce (Wood Green)
Hattersley, Roy
Millan, Bruce


Callaghan, Rt. Hn. James
Hazell, Bert
Miller, Dr. M. S.


Carmichael, Neil
Heffer, Eric S.
Milne, Edward (Blyth)


Carter-Jones, Lewis
Henderson, Rt. Hn. Arthur
Molloy, William


Castle, Rt. Hn. Barbara
Herbison, Rt. Hn. Margaret
Morris, Alfred (Wythenshawe)


Chapman, Donald
Hill, [...]. (Midlothian)
Morris, Charles (Openshaw)


Coleman, Donald
Hobden, Dennis (Brighton, K'town.)
Morris, John (Aberavon)


Conlan, Bernard
Holman, Percy
Murray, Albert


Cor[...]et, Mrs. Freda
Homer, John
Neal, Harold


Cousins, Rt. Hn. Frank
Houghton, Rt. Hn. Douglas
N[...]wens, Stan


Craddock, George (Bradford, S.)
Howarth, Harry (Welling[...]orough)
Noel-Baker, Francis (Swindon)


Crawshaw, Richard
Howarth, Robert L. (Bolton, E.)
Noel-Baker, Rt.Hn.Philip(Derby,S.)


Cronin, John
Howell, Denis (Small Heath)
Norwood, Christopher


Crosland, Rt. Hn. Anthony
Howie, W.
Oakes, Gordon


Crossman, Rt. Hn. R. H. S.
Hoy, James
Ogden, Eric


Cullen, Mrs. Alice
Hughes, Emrys (S. Ayrshire)
O'Malley, Brian


Dalyell, Tam
Hughes, Hector (Aberdeen, N.)
Oram, Albert E. (E. Ham, S.)


Darling, George
Hunter, Adam (Dunfermline)
Orbach, Maurice


Davies, G. Elfed (Rhondda, E.)
Hunter, A. E. (Feltham)
Orme, Stanley


Davies, Harold (Leek)
Hynd, H. (Accrington)
Oswald, Thomas


Davies, Ifor (Gower)
Irvine, A. J. (Edge Hill)
Owen, Will


Davies, S. O. (Merthyr)
Irving, Sydney (Dartford)
Padley, Walter


de Freitas, Sir Geoffrey
Jackson, Colin
Page, Derek (King's Lynn)


Delargy, Hugh
Janner, Sir Barnett
Paget, R. T.


Dell, Edmund
Jay, Rt. Hn. Douglas
Palmer, Arthur


Dempsey, James
Jeger, George (Goole)
Pannell, Rt. Hn. Charles


Diamond, John
Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)
Park, Trevor (Derbyshire, S.E.)


Dodds, Norman
Jenkins, Hugh (Putney)
Parker, John


Doig, Peter
Johnson, Carol (Lewisham, S.)
Parkin, B. T.


Donnelly, Desmond
Jones, Dan (Burnley)
Pavitt, Laurence


Driberg, Tom
Jones,Rt.Hn.Sir Elwyn(W.H[...]m,S.)
Pearson, Arthur (Pontypridd)


Duffy, Dr. A. E. P.
Jones, [...]. Idwal (Wrexham)
Peart, Rt. Hn. Fred


Dunn, James A.
Jones, T. W. (Merioneth)
Pentland, Norman


Dunnett, Jack
Kelley, Richard
Perry, Ernest G.


Edelman, Maurice
Kenyan, Clifford
Popplewell, Ernest


Edwards, Rt. Hn. Nest (Caerphilly)
Kerr, Mrs. Anne (R'ter &amp; Chatham)
Prentice, R. E.


English, Michael
Kerr, Dr. David (W'worth, Central)
Price, J. T. (Westhoughton)


Ennals, David
Lawson, George
Probert, Arthur


Ensor, David
Leadbitter, Ted
Pursey, Cmdr. Harry


Evans, Albert (Islington, S.W.)
Ledger, Ron
Randall, Harry







Rankin, John
Slater, Joseph (Sedgefield)
Wainwright, Edwin


Redhead, Edward
Small, William
Walden, Brian (All Saints)


Rees, Merlyn
Smith, Ellis (Stoke, S.)
Walker, Harold (Doncaster)


Reynolds, G. W.
Snow, Julian
Wallace, George


Rhodes, Geoffrey
Soskice, Rt. Hn. Sir Frank
Warbey, William


Richard, Ivor
Spriggs, Leslie
Watkins, Tudor


Roberts, Albert (Normanton)
Stonehouse, John
Weitzman, David


Roberts, Goronwy (Caernarvon)
Stones, William
Wells, William (Walsall, N.)


Robertson, John (Paisley)
Strauss, Rt. Hn. G. R. (Vauxhall)
White, Mrs. Eirene


Robinson, Rt. Hn.K.(St. Pancras, N.)
Stross,SirBarnett(Stoke-on-Trent,C.)
Whitlock, William


Rodgers, William (Stockton)
Summerskill, Hn. Dr. Shirley
Wilkins, W. A.


Rogers, George (Kensington, N.)
Swain, Thomas
Willey, Rt. Hn. Frederick


Rose, Paul B.
Swingler, Stephen
Williams, Alan (Swansea, W.)


Ross, Rt. Hn. William
Symonds, J. B.
Williams, Clifford (Abertillery)


Sheldon, Robert
Taverne, Dick
Williams, W. T. (Warrington)


Shinwell, Rt. Hn. E.
Taylor, Bernard (Mansfield)
Willis, George (Edinburgh, E.)


Shore, Peter (Stepney)
Thomas, George (Cardiff, W.)
Wilson, William (Coventry, S.)


Short, Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Thomas, Iorwerth (Rhondda, W.)
Winterbottom, R. E.


Short, Mrs. Reéee (W'hampton,N.E.)
Thomson, George (Dundee, E.)
Wyatt, Woodrow


Silkin, John (Deptford)
Thornton, Ernest
Yates, Victor (Ladywood)


Silkin, S. C. (Camberwell, Dulwich)
Tinn, James
Zilliacus, K.


Silverman, Julius (Aston)
Tomney, Frank



Silverman, Sydney (Nelson)
Tuck, Raphael
TELLERS FOR THE NOES:


Skeffington, Arthur
Urwin, T. W.
Mr. McCann and Mr. Harper.


Slater, Mrs. Harriet (Stoke, N.)
Varley, Eric G.

Amendments made: In page 104, line 16, leave out "five" and insert "seven".

In page 104, line 19, leave out from "above" to end of line 33, and insert:
Provided that the aggregate relief for all sources, as calculated apart from this proviso, shall be reduced by one-fifth in the year 1969–70, by two-fifths in the year 1970–71, by three-fifths in the year 1971–72 and by four-fifths in the year 1972–73.
(2) The aggregate relief for any year of assessment, as calculated in accordance with subsection (1) above apart from any reduction under the proviso to that subsection, shall, where necessary, be reduced so as not to exceed the adjusted aggregate amount in the related period of the unused credit for foreign tax in respect of the company's income from overseas sources of trading income; and for this purpose the said aggregate amount is to be adjusted by computing the unused credit for foreign tax in respect of the income from any source—

(a) where the company is not within the charge to corporation tax in respect of the source, by treating the income as nevertheless chargeable to corporation tax and not chargeable to income tax or profits tax; and
(b) where the foreign tax is more than 56¼ per cent., by disallowing the unused credit in respect of the excess; and
(c) by calculating the income without any deduction for the unused credit.—[Mr. MacDermot.]

Mr. MacDermot: I beg to move Amendment No. 639, in page 104, line 38, after "amount" to insert:
after deducting income tax borne by the company on franked investment income".
Would it be convenient, Sir Samuel, if we discussed with this the next Government Amendment, No. 788, in page 104, line 45, to leave out from "sources" to the end of line 3 on page 105 and to insert:

Provided that—

(a) the amount of any income shall for purposes of this subsection be calculated without deduction for any unused credit for foreign tax; and
(b) where in the related period or any part of it, the company is not within the charge to corporation tax in respect of any source of income, this subsection shall have effect in relation thereto as if income from the source (so far as of a description chargeable to corporation tax) had been charged to corporation tax and not charged to income tax or profits tax.

The Deputy-Chairman (Sir Samuel Storey): Yes, if the Committee so wishes.

Mr. MacDermot: I am obliged.
These Amendments taken together make three alterations to the relief provisions in the Bill. Amendment No. 639 deals with the question of franked investment income, that is to say, dividends received from other United Kingdom companies, which can then be distributed to shareholders without further deduction of tax. Where a company claims relief in respect of franked investment income, the effect of the Amendment is to regard dividends paid out by the company as coming, first, out of the franked dividends received and, only when this fund is exhausted, as coming out of trading income. The object is to ensure that overspill relief payments shall not exceed the actual tax paid over to the Revenue on the dividends declared.
6.0 p.m.
Amendment No. 788 contains two provisos. The first corrects a drafting defect in the Bill and makes the correction in favour of the taxpayer. It ensures


that in restricting the relief to tax on dividends which can be said to have been provided out of the overseas sources of income, any deduction for unrelieved foreign tax will be made in calculating the amount of the overseas income. This deals with the point to which the hon. Member for Yeovil (Mr. Peyton) referred earlier.
Proviso (b) extends for the purposes of subsection (3) the relaxation in Amendment No. 638 under which income which is not charged to Corporation Tax in the related period is nevertheless regarded as so charged.

The Deputy-Chairman: Before I call the next speaker, perhaps I might add that as we are discussing Amendment No. 788 with this Amendment, we should also discuss Amendment No. 524, in the name of the hon. Member for Yeovil (Mr. Peyton), in page 105, line 3, at end insert:
(4) Notwithstanding paragraph 5 of Schedule 15 to this Act the provisions of paragraph 7(3) of the 16th Schedule to the Income Tax Act 1952 shall continue to apply in relation to the calculation of any of the amounts mentioned in this section.

Mr. Heath: We are grateful to the Financial Secretary for his explanation of Amendments No. 639 and No. 788. He has not, however, been entirely frank with the Committee in that he has not given us the history of this extraordinarily interesting Amendment. It would be for our benefit if he were to give us a little explanation of how this came about.
All we know is that we started with the Bill, and then on 1st June the Chancellor decided to rewrite Clause 79, and he tabled Amendment No. 639 and its colleague, which was then Amendment No. 640. But those of us who were then following the Order Paper closely found that on 15th June Amendment No. 640 was withdrawn and a fresh Amendment, No. 783, was put in its place. Obviously, this must have meant a serious change. First of all, there was the rewrite in Amendment No. 640, and then the Chancellor was dissatisfied with his own Amendment, and so he tore it out of the Order Paper and replaced it with Amendment No. 783. We thought that this showed a considerable rate of progress in quite a short time. The Chancellor

became notorious for the rolling redraft not only of the Bill but of his own Amendments. Picture our astonishment when on 19th June Amendment No. 783 came to an early death and was replaced by Amendment No. 788.
I believe that the Financial Secretary ought to give us an explanation of the difference between the Bill, Amendment No. 640, Amendment No. 783 which replaced No. 640, and Amendment No. 788 which now replaces Amendment No. 783. I feel that if I were in a really vicious mood I should move to report Progress to allow the Chancellor to think further about whether he wishes to withdraw Amendment No. 788 and table any further Amendments in this progressive rewrite of Clause 79.
If this is what the Financial Secretary—I notice that he is in close conclave with the Chancellor—would like to happen, I am prepared to move to report Progress so that the Chancellor may have further time. After all, last night we had, without warning, the withdrawal of a Schedule, which has been replaced by another today, which is starred.
The Chancellor may wish to tear this Amendment out of the Order Paper, giving it an early demise, and bring forward another later. We are trying to help the Chancellor. I am giving the Financial Secretary time to look at his papers to discover what each Amendment does. We do not know whether the Financial Secretary has been given all the papers or only those relating to the latest version. We should like a word of explanation not only about the inadequacy of the drafting of the Bill and the incompetence of the Amendments that we have had put before us but about what the difference is before we reach our final, though still possibly temporary, resting place with Amendment No. 788.

Mr. Peyton: It will take me a moment or two to get over the shock of the remark of my right hon. Friend the Member for Bexley (Mr. Heath) that he could be vicious. When I have done that, I may be able to deal shortly with this extraordinarily complicated point. The Bill is complicated enough, but the Government keep on contributing more complexity to it by apparently contradicting themselves.
As I remarked earlier, I am slightly puzzled that the Schedule appears to


say that at some future date Parliament will determine that paragraph 7(3) of the 16th Schedule to the Income Tax Act, 1952, shall no longer apply. Now, as I understand it, Clause 79 says that this shall no longer apply forthwith. It may well be that I have entirely misunderstood the point. However, the Amendment that we are discussing together with the hon. and learned Gentleman's Amendment would purport to leave that Schedule of the 1952 Act still operative, and this would give a very considerable fillip to the overspill relief available to companies. I hope that the Financial Secretary will be moved to accept my Amendment and that he will be able to clear up the slightly complicated problem to which I have referred and to which I do not see any answer except a contradiction which has been created by the Government themselves.

Mr. MacDermot: If I might relieve the right hon. Member for Bexley (Mr. Heath) of the great anxiety that he has found in trying to follow the alterations in the history of the Amendment on the Order Paper, perhaps I can tell him that the new proviso (b) replaces the original Amendment No. 640. As that was originally tabled, the words appearing in brackets:
so far as of a description chargeable to corporation tax
were omitted, and so the Amendment was tabled again, with those words included in the corrected version. That was in Amendment No. 783. We then had the additional proviso (a). It was felt convenient to bring the two provisos together. The result was that we withdrew the earlier Amendment and tabled this one. I do not feel that the right hon. Gentleman, who shows such great understanding of all the provisions of the Bill, can have been put in any very great difficulties by these changes.
I turn to the Amendment in the name of the hon. Member for Yeovil (Mr. Peyton) which we are discussing with the Government Amendments. It relates to the question of the deduction which is allowed under the present law when considering the question of the foreign tax excess. Under the present law, where the foreign tax is in excess of the United Kingdom tax the amount which cannot be allowed as a credit is allowed as a

deduction in arriving at the measure of the income. Under the provisions of Schedule 15 of the Bill, the title to this deduction for Corporation Tax is to be withdrawn from a date to be determined in the future.
The hon. Gentleman's Amendment is designed to ensure that that deduction shall be given for the purposes of calculating overspill relief and shall continue to be given even when the title to that deduction is withdrawn under Schedule 15. The proposal is objectionable in principle, and it would inflate the overspill payments to amounts which could not be justified by comparison with the position of companies operating at home. It is similar to the point that we were discussing a moment ago. Whatever may have been the merits of the proposal earlier, now that, following Amendment No. 638, just passed by the Committee, which abolishes the restriction limiting the relief to a proportion of the excess credit, the whole of the excess credit is to be allowed, there can be no justification for this proposal, for the reason that there is now no unrelieved tax at the end of the day because the company is given an overspill payment which is equal to the whole of the amount for the overseas tax for which it would, under the notional Corporation Tax calculation, not get credit. So the whole of the overseas taxation is relieved and therefore to give deductions for the so-called unrelieved taxation would give the deductions twice over.

Mr. Peyton: I know that this is a very complicated matter but will the hon. and learned Gentleman tell us what overseas tax is thereby effectively relieved? This is something I find it quite impossible to accept on the evidence available to us.

Mr. MacDermot: What I am saying is that there is no unrelieved taxation at the end of the day. I am not taking account, of course, of matters which I referred to earlier as coming outside the calculation—where, for example, the foreign tax is above the total rate of 56¼per cent.—but any tax, as it were, which qualifies for relief will be relieved.
That leads me to the second point on which I know there are differences between the two sides of the Committee. We maintain the principle, have done throughout and, to be logical must do so again, that we should not, through


these transitional provisions, put an overseas company in a more favourable position than its United Kingdom counterpart. I must advise the Committee to resist Amendment No. 524.

Mr. Geoffrey Lloyd: I think that the Financial Secretary would agree at least on the practical point, leaving all figures and technicalities aside, that Amendment No. 524 would certainly benefit the very hard case of the Shell Company that I mentioned earlier. I was rather shocked when the hon. and learned Gentleman earlier seemed to dismiss this as something rather unimportant. Perhaps I was doing him an injustice. I would rather say that I was perhaps mistaken in my impression, because I feel that both he and the Chancellor recognise that there is serious injury to a very great national interest.
The oil companies are as big a national interest as the shipping industry. They are very important indeed and something that the Chancellor would not like to impair. Amendment No. 524 would assist to overcome the grave disproportion between the two great parts of the British oil industry. If the Chancellor does not feel that he can accept Amendment No. 524, I hope that at least he will tell us that he will seriously try to do something more to avoid this very considerable anomaly.

Amendment agreed to.

Further Amendment made: In page 104, line 45, leave out from "sources" to end of line 3 on page 105 and insert:
Provided that—

(a) the amount of any income shall for purposes of this subsection be calculated without deduction for any unused credit for foreign tax; and
(b) where in the related period or any part of it, the company is not within the charge to corporation tax in respect of any source of income, this subsection shall have effect in relation thereto as if income from the source (so far as of a description chargeable to corporation tax) had been charged to corporation tax and not charged to income tax or profits tax.—[Mr. MacDermot.]

The Deputy-Chairman: The next Amendment to be selected is No. 603, standing in the name of the right hon. Member for Birmingham, Handsworth (Sir E. Boyle), in page 105, line 4, leave out from beginning to end of line 12 and insert:

(4) If, in any year of assessment for which relief is claimed, the net amount of dividends paid by the company and attributable to income from overseas sources of trading income exceeds the corresponding amount in the year 1964–65, then the aggregate relief, as calculated in the foregoing subsections apart from any reduction under the proviso to subsection (1) shall be reduced by two-fifths of the excess.
At the same time the Committee can discuss Amendment No. 786, in the name of the hon. Member for Cardiff, North (Mr. Box) and Amendment No. 676 standing in the name of the right hon. Member for Orkney and Shetland (Mr. Grimond) and the names of his hon. Friends, in page 105, line 12, leave out "four-fifths" and insert "one-half".

Sir E. Boyle: I informed the Chairman earlier that we did not propose to move Amendment No. 603. We prefer instead to move Amendment No. 786 which overlaps with it.
I beg to move, Amendment No. 786, in page 105, line 4, to leave out from beginning to end of line 12 and to insert:
(4) If, in any year of assessment for which relief is claimed, the net amount of the dividends paid by the company and attributable to income from overseas sources of trading income exceeds the corresponding amount in each of the four years of assessment 1962–63, 1963–64. 1964–65 and 1965–66, the aggregate relief, as calculated in accordance with the foregoing subsections apart from any reduction under the proviso to subsection (1), shall be reduced by two-fifths of whichever excess is the least:
Provided that the net amount of the company's dividends in each of the four years of assessment 1962–63, 1963–64, 1964–65 and 1965–66 shall for the purposes of this subsection be treated as those dividends increased (when appropriate) in proportion to the increase in the company's income from all sources for the year of assessment for which relief is claimed as compared with such income for 1962–63, 1963–64, 1964–65 and 1965–66, respectively.
We now proceed to subsection (4) of Clause 79 which, as the Chancellor's White Paper made clear—and this was before he put down his Amendments—provides that if, in any year for which relief is claimed, the net amount of the dividends paid by the company exceeds the net dividend paid in the base year, relief is not to exceed four-fifths of the excess. Our Amendment seeks to mitigate the harshness of the subsection and is one to which we attach importance.
There are four aspects that I would mention. First, our Amendment as drafted adopts the concession which has already been agreed to by the Chancellor


and which we shall come to when we reach Amendment No. 642—that the excess to be used shall be whichever is least in relation to the four years 1962–63 to 1965–66. We have linked this Amendment to that concession.
6.15 p.m.
The second thing that our Amendment does is to confine the restriction of relief to dividends paid out of overseas income. As the Clause stands, a mixed company—one with home and overseas income—is particularly severely treated because a dividend increase flowing from increased home profits is likely to extinguish overspill relief which is relevant only to its overseas income. This is surely a relevant point in the context of the Bill because, in recent years, we have had a considerable increase in home investment and the Chancellor wants, by this Bill to encourage ploughing back and—although we have our disagreement about method—to encourage investment in productive industry. Surely the income from this investment must soon begin to flow in and it would be absurd if it were to affect overspill relief.
The third aspect of our Amendment is that it would reduce the restriction of relief from four-fifths to two-fifths. Finally it would also provide that, when income increased in the years of claim compared with earlier years, increased dividends could be paid without incurring this severe penalty. If, under the Bill as it stands, the dividends paid in 1966–67 are the maximum dividends which can be paid without penalty, any increase in those dividends in any of the years 1967–68 to 1972–73 inclusive will result in a deduction of relief. Such a freezing of dividend levels in this subsection is made mere serious by the decision of the Chancellor, which we otherwise welcome, to have a seven-year tapering period rather than five years. We feel that this is thoroughly wrong, for two reasons.
The first reason I touched upon in my speech a week ago. We feel strongly that it is in the public interest and not just in the shareholders' interest that a corporation should be able to go to the market on reasonable terms, not least because it is in the interest of our balance of payments that shareholders, even in this country, should act as it were as a

catalyst to attract overseas borrowings. We are strongly opposed to anything that smacks of a compulsory dividend freeze over these years because we believe that dividends rising with income, increased capital expenditure and what I call the orderly expansion of great corporations are things that go together, and it is desirable that great corporations should be able to raise capital on reasonable terms.
There is a further point which we have constantly made—that anything which smacks over a long period of dividend limitation is open to very severe criticism. From time to time the name of Dr. Kaldor has been invoked in our debates, and it is relevant now to point out that I have seen nothing more scathing than his comments on freezing dividends which are to be found in volume 3 of his collected essays, made in connection with the Socialist White Paper Act, 1951. Again, I cannot help thinking of a quotation from the proceedings of Finance Act, 1951, which seems very relevant to the sort of issue we are now discussing. It was uttered on the occasion of the first Finance Act that I heard in this House:
…if there is a social purpose to be accomplished of any importance, either the State should do it or the State should make it possible for private enterprise to do it; but what the State should not do is to be inert and to surround private enterprise with such inhibitions that private enterprise cannot do it."—[OFFICIAL RLPORT, 2nd July, 1951; Vol. 489, c. 1916.]
Those prudent words were uttered by Mr. Aneurin Bevan on a Finance Bill Amendment in 1951.
This part of Clause 79 is too severe for mixed companies. I do not believe that with a long seven-year tapering period it is desirable to treat dividends as severely as the subsection does. On the contrary, if as I hope we have an increase in capital investment in this country as income rises, not least that of mixed companies, then surely it is only right and proper that this increased income should be reflected in some increase in dividends, which is bound up with the ability of many great corporations to develop as one would wish.
In order to anticipate a possible objection, I repeat a point which I made last week. The issue of the conditions in which corporations can expand and


raise capital on reasonable terms is distinct from that of the distribution of the larger national income when we have it. I would certainly be one of those who wish to see a steady and, if possible, slightly rising proportion of the national income going to social purposes of one kind or another. But, none the less, we believe that as it stands this part of the Clause is too restrictive and I very much hope that the Chancellor will be able to say that under at least one or two of the headings in which I have endeavoured to argue the case he is ready to meet us a little more, and to make some concessions, as he has already done on so many other aspects of the Bill.

Mr. MacDermot: The Amendment makes a number of proposals. One of them is a proposal contained in an Amendment of my right hon. Friend which will be moved shortly, but I must advise the Committee that we do not find the others acceptable.
In order to answer the right hon. Gentleman's arguments, I must go back to restate the principle and thinking behind subsection (4). It is that if a company is able to increase its dividends, it is not a very eligible candidate for overspill relief, since the object of overspill is to assist a company which, as a result of the introduction of Corporation Tax, may be finding difficulty in maintaining its dividends during what would otherwise be a difficult transitional period, and thus avoid either hardship to the shareholders, or lack of a proper degree of plough back by the company.
Amendment No. 603 proposed that that principle should be applied only to dividends attributable to the foreign profits, but it ignored the realities. Either the shareholders would be receiving their increased dividends, or they would not, and if they were the relief should be cut down even though the increase in dividends was due solely to the increase in home profits. If the company could afford to increase its dividends, whatever the source of the funds used to provide the increase, it could not fairly be said to be in any hardship or in any need of help to maintain its dividends to shareholders.
The Amendment which the right hon. Gentleman moved and which was in the name of the hon. Member for Cardiff—

The Chancellor of the Exchequer (Mr. James Callaghan): Cardiff, North.

Mr. MacDermot: I apologise to my right hon. Friend for attributing the whole of Cardiff to the hon. Member for Cardiff, North (Mr. Box). The Amendment which the right hon. Gentleman has moved goes even further and proposes that the dividends of the base years should be increased in the comparison by reference to the increase in the company's total income between the base year and the year of claim. In other words, it is argued that no account should be taken of an increase in dividends so long as it is merely proportionate to an increase in overseas income. This would be even more generous than the original Amendment. We take the view that to ignore this dividend increase would be entirely inconsistent with the purpose for which the relief has been given.

Mr. George Y. Mackie: I gathered that the whole point of introducing this permanent legislation was to persuade people to invest money at home so that there would be more social benefit and so on. If a company increases its dividends from investment at home, surely it is meeting the purpose for which the Chancellor of the Exchequer is introducing this legislation.

Mr. MacDermot: That is a complete travesty of everything my right hon. Friends and I have been saying about this tax. It is not that we are seeking to dissuade people from investing overseas. As my right hon. Friend has said over and over again, the importance of overseas investment is fully appreciated. All we are seeking to do is to take that action which we judge to be right to restore balance where there is lack of balance. We certainly want and intend that there shall be and continue to be a net increase in our overseas investments, but that that should keep pace with what the country can afford. We cannot accept the hypothesis which underlay the intervention of the hon. Member for Caithness and Sutherland (Mr. George Y. Mackie).

Sir E. Boyle: What bothers me about the approach of the hon. and learned Gentleman is that he speaks of overspill relief as though it were primarily intended to be an assistance to shareholders during this period, but surely the point is—and it is wholly in accordance with the policy of both sides of the Committee—that businesses should not only plough back, but be able to extend their plant and attract new capital. I do not see how that can be done if mixed companies are treated as severely as the subsection proposes.

Mr. MacDermot: What we are saying is that mixed companies which are expanding are not in the same need of relief from these overseas provisions as companies which are not expanding. The purpose of the relief is to help them to tide over the interim period and not to put the overseas company in a more favourable position than the home company.

Mr. Peter Emery: Can I press the Financial Secretary on this issue, to which we obviously attach a great deal of significance? If the policy of the Government in dealing with companies which are investing overseas is instead to have them invest in this country, then, if the companies follow the Government's wish, they will find that their overspill position is worsened and they will be in a cleft stick, for although the Government wish to encourage companies to invest in this country, they are taking away some of their overspill relief which they would have had if they had not invested in this country.

Mr. MacDermot: The purpose of the relief is to help companies which are in a worse position and the hypothesis which we have been asked to consider is that of a company which, to the extent about which we are arguing, is not in a worse position.
The point upon which we are agreed is that the Amendment proposes that the base years which are to be used for the standard for comparison should not be limited to the three years originally provided, 1962–63, 1963–64, 1964–65, but should also include the fourth year, 1965–66. I will say no more about that now, because I shall shortly be moving an Amendment to give effect to that if the Committee rejects this Amendment.
6.30 p.m.
The final question is whether the restriction in the relief should be four-fifths of the excess, as the Clause provides, or two-fifths which is proposed in the Amendment. I suppose there is no absolute answer in logic, and if one were taking a strictly logical view the relief should be cut down by the whole of the excess. The proposal in the Clause is to cut the relief by four-fifths of the excess and that is intended to allow some measure of latitude. Any further reduction, such as suggested, would involve substantial payments out of public funds, payments which were designed to avoid hardship to shareholders in companies which would otherwise have had to reduce their dividends or their plough-back and would involve making these payments to companies which had shown that they could afford to increase their dividends.
For these reasons I must advise the Committee to reject the Amendment.

Mr. John Harvey: When the Financial Secretary talks of companies in a worse position, or companies not in a worse position, he could be talking about companies which are well managed and those which are not well managed. One of the things that worries us about so many of the provisions of this Bill is that it is the efficient company which so often seems to be the one most likely to be penalised and the most inefficient the one most likely to be helped. Is this really the image of greater efficiency that the party opposite has been seeking to create? This is the sort of thing which worries us very much in the provisions, and the Amendment which my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle) has urged could be a powerful incentive to efficiency.

Mr. Donald Box: There are just two short points I should like to raise in respect of the Amendment moved by my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle). It seems that companies with mixed income from home and overseas are treated extremely harshly under Clause 79(4).
My right hon. Friend the Member for Thirsk and Malton (Mr. Turton) referred earlier to the Associated Portland Cement


Company. I understand that this company is enjoying a tremendous and overwhelming demand for its products, both at home and abroad. The demand has been so great that in recent months, even a year or two ago, it has had to import cement at considerable cost and sometimes at a loss to the company and certainly to the adverse effect of our balance of payments. This company has just completed a two to three year expansion programme and considerably increased supplies will be forthcoming. One hopes that will increase its increment revenue. It seems particularly hard on the company just when this expansion programme is bearing fruit that there will be some penalty, some reduction in the overspill relief.
The other point I wanted to raise was the fourth point taken by my right hon. Friend the Member for Handsworth, because it means in effect that the dividends of many of these companies are going to be virtually frozen for quite a long period unless they are going to increase them. Even though their revenue has increased, they will be able to increase the dividends only at a considerable penalty in the near future. It seems that without taking increased revenue into account this is a most unreasonable situation, and I think it is bound to lead to a further decline in the market values of the shares, to the obvious detriment of the shareholders, many of whom are elderly people with small amounts spread in a number of these companies who have already had to put up with the hazards of investing in overseas and Commonwealth countries where things are not as straightforward and stable as one would like.
It is bound to make it more difficult and more expensive to raise new capital in the future. I think that higher dividends should be allowed where higher profits justify it in the future. This is surely a principle which has already been established earlier in the Bill and I hope that the Chancellor will bear it in mind when he is considering the matter.

Mr. Peter Emery: As my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle) said in moving the Amendment, it is a very relevant and important point, although we accept that

it is one which will affect only a small number of companies. We have tried very hard in all the arguments we have put to make certain that everyone is considered fairly, and I am certain that is what the Chancellor of the Exchequer wants—that everyone's views should be aired properly and that they should feel, when this Finance Bill has been considered, that their particular problems have been voiced in this Committee.
What we are saying in this Amendment, if one comes away from the technical points and down to the simple English, is that first of all any restriction of relief should be confined to dividend paid out of overseas income. In other words, if investment at home is being encouraged, and that is what the Government have said they want to do, with a mixed company, it would surely be absurd if increased dividend could not be paid out of increased home earnings without losing on the overspill.
The Chancellor answers this point by saying that if there is a better position at home then dividends can be paid and there is no hardship. But this is only the second stage of three stages in this whole argument. If earnings at home allow an increase of dividends then the overspill falls and one is no better off. One is not able to show one's better working at home on one's domestic earnings and when the Chancellor says that everything is all right because the company is better off, the company has advanced in order to be able to mark time on its dividend payments. Where a company's total income has increased in the years of the claim as compared with the base years surely it should be possible to increase dividends pro rata. It seems that it is quite wrong that it should have to incur the four-fifths penalty. We believe that if there is a penalty it could certainly come down to the two-fifths level.
It is surely fair to argue that it is absurd to suggest we should have a dividend freeze. The Government would never at any time suggest that there should be a wage freeze over a period of seven years and that if there was not there would be penalties. We on this side of the Committee believe that, if the Government do not wish to say that, it is quite wrong for them to suggest that there should be a dividend freeze, whether on overseas or domestic dividends. This


is a point upon which we have got no form of concession at all from the Chancellor and, because of this, it seems so important that I must ask my hon. Friends to divide the Committee in support of the Amendment.

Question put, That the words proposed to be left out, to the second "the" in line 6, stand part of the Clause:—

The Committee divided: Ayes 283, Noes 280.

Division No. 195.]
AYES
[6.39 p.m.


Abse, Leo
Evans, Albert (Islington, S.W.)
Lee, Rt. Hn. Frederick (Newton)


Albu, Austen
Evans, Ioan (Birmingham, Yardley)
Lee, Miss Jennie (Cannock)


Allaun, Frank (Salford, E.)
Fernyhough, E.
Lever, Harold (Cheetham)


Al[...]dritt, Walter
Finch, Harold (Bedwellty)
Lever, L. M. (Ardwick)


Allen, Scholefield (Crewe)
Fitch, Alan (Wigan)
Lewis, Arthur (West Ham, N.)


Armstrong, Ernest
Fletcher, Sir Eric (Islington, E.)
Lewis, Ron (Carlisle)


Atkinson, Norman
Fletcher, Ted (Darlington)
Lipton, Marcus


Bacon, Miss Alice
Fletcher, Raymond (Ilkeston)
Lomas, Kenneth


Bagier, Cordon A. T.
Floud, Bernard
Loughlin, Charles


Barnett, Joel
Foley, Maurice
Mabon, Dr. J, Dickson


Baxter, William
Foot, Michael (Ebbw vale)
McBride, Neil


Beaney, Alan
Fraser, Rt. Hn. Tom (Hamilton)
McCann, J.


Bellenger, Rt. Hn. F. J.
Freeson, Reginald
MacColl, James


Bence, Cyril
Galpern, Sir Myer
MacDermot, Niall


Benn, Rt. Hn. Anthony Wedgwood
Garrett, W. E.
McGuire, Michael


Bennett, J. (Glasgow, Bridgeton)
Garrow, A.
McInnes, James


Binns, John
George, Lady Megan Lloyd
McKay, Mrs. Margaret


Bishop, E. S.
Ginsburg, David
Mackenzie, Gregor (Rutherg[...]en)


Blackburn, F.
Gourlay, Harry
Mackie, John (Enfield, E.)


Blenkinsop, Arthur
Gregory, Arnold
McLeavy, Frank


Boardman, H.
Griffiths, David (Rother Valley)
MacMillan, Malcolm


Boston, T. G.
Griffiths, Rt. Hn. James (Llanelly)
Mahon, Peter (Preston, S.)


Bowden, Rt. Hn. H. W. (Leics S.W.)
Griffiths, Will (M'chester, Exchange)
Mahon, Simon (Bootle)


Boyden, James
Gunter, Rt. Hn. R. J.
Mallalieu,J.P.W.(Huddersfield,E.)


Braddock, Mrs. E. M.
Hale, Leslie
Manuel, Archie


Bradley, Tom
Hamilton, James (Bothwell)
Mapp, Charles


Bray, Dr. Jeremy
Hamilton, William (West Fife)
Marsh, Richard


Brown, Rt. Hn. George (Belper)
Hamling, William (Woolwich, W.)
Mason, Roy


Brown, Hugh D. (Glasgow, Provan)
Hannan, William
Maxwell, Robert


Brown, R. W. (Shoreditch &amp; Fbury)
Harrison, Walter (Wakefield)
Mayhew, Christopher


Buchan, Norman (Renfrewshire, W.)
Hart, Mrs. Judith
Mellish, Robert


Buchanan, Richard
Hattersley, Roy
Mendelson, J. J.


Butler, Herbert (Hackney, C.)
Hazell, Bert
Mikardo, Ian


Butler, Mrs. Joyce (Wood Green)
Heffer, Eric S.
Millan, Bruce


Callaghan, Rt. Hn. James
Henderson, Rt. Hn. Arthur
Miller, Dr. M. S.


Carmichael, Neil
Herbison, Rt. Hn. Margaret
Milne, Edward (Blyth)


Carter-Jones, Lewis
Hill, J. (Midlothian)
Molloy, William


Chapman, Donald
Hobden, Dennis (Brighton, K'town.)
Morris, Alfred (Wythenshawe)


Coleman, Donald
Holman, Percy
Morris, Charles (Openshaw)


Conlan, Bernard
Horner, John
Morris, John (Aberavon)


Corbet, Mrs. Freda
Houghton, Rt. Hn. Douglas
Murray, Albert


Cousins, Rt. Hn. Frank
Howarth, Harry (Wellingborough)
Neal, Harold


Craddock, George (Bradford, S.)
Howarth, Robert L. (Bolton, E.)
Newens, Stan


Crawshaw, Richard
Howell, Denis (Small Heath)
Noel-Baker, Francis (Swindon>


Cronin, John
Howie, W.
Norwood, Christopher


Cropland, Rt. Hn. Anthony
Hoy, James
Oakes, Gordon


Crossman, Rt. Hn. R. H. S.
Hughes, Emrys (S. Ayrshire)
Ogden, Eric


Cullen, Mrs. Alice
Hughes, Hector (Aberdeen, N.)
O'Malley, Brian


Dalyell, Tam
Hunter, Adam (Dunfermline)
Oram, Albert E. (E. Ham, S.)


Darling, George
Hunter, A. E. (Feltham)
Orbach, Maurice


Davies, G. Elfed (Rhondda, E.)
Hynd, H. (Accrington)
Orme, Stanley


Davies, Harold (Leek)
Irvine, A. J. (Edge Hill)
Oswald, Thomas


Davies, Ifor (Gower)
Irving, Sydney (Dartford)
Owen, Will


Davies, S. O. (Merthyr)
Jackson, Colin
Padley, Walter


de Freitas, Sir Geoffrey
Janner, Sir Barnett
Page, Derek (King's Lynn)


Delargy, Hugh
Jay, Rt. Hn. Douglas
Paget, R. T.


Dell, Edmund
Jeger, George (Goole)
Palmer, Arthur


Dempsey, James
Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)
Pannell, Rt. Hn. Charles


Diamond, Rt. Hn. John
Jenkins, Hugh (Putney)
Park, Trevor (Derbyshire, S.E.)


Dodds, Norman
Johnson, Carol (Lewisham, S.)
Parker, John


Doig, Peter
Jones, Dan (Burnley)
Parkin, B. T.


Donnelly, Desmond
J0nes.Rt.Hn.Slr Elwyn(W.Ham,S.)
Pavitt, Laurence


Driberg, Tom
Jones, J. Idwal (Wrexham)
Pearson, Arthur (Pontypridd)


Duffy, Dr. A. E. P.
Jones, T. W. (Merioneth)
Peart, Rt. Hn, Fred


Dunn, James A.
Kelley, Richard
Pentland, Norman


Dunnett, Jack
Kenyon, Clifford
Perry, Ernest G.


Edelman, Maurice
Kerr, Mrs. Anne (R'ter &amp; Chatham)
Popplewell, Ernest


Edwards, Rt. Hn. Nest (Caerphilly)
Kerr, Dr. David (W'worth, Central)
Prentice, R. E.


English, Michael
Lawson, George
Price, J. T. (Westhoughton)


Ennals, David
Leadbitter, Ted
Probert, Arthur


Ensor, David
Ledger, Ron
Pursey, Cmdr. Harry




Randall, Harry
Slater, Mrs. Harriet (Stoke, N.)
Varley, Eric G.


Rankin, John
Slater, Joseph (Sedgefield)
Wainwright, Edwin


Redhead, Edward
Small, William
Walden, Brian (All Saints)


Rees, Merlyn
Smith, Ellis (Stoke, S.)
Walker, Harold (Doncaster)


Reynolds, G. W.
Snow, Julian
Wallace, George


Rhodes, Geoffrey
Soskice, Rt. Hn. Sir Frank
Warbey, William


Richard, Ivor
Spriggs, Leslie
Watkins, Tudor


Roberts, Albert (Normanton)
Stonehouse, John
Weitzman, David


Roberts, Goronwy (Caernarvon)
Stones, William
Wells, William (Walsall, N.)


Robertson, John (Paisley)
Strauss, Rt. Hn. G. R. (Vauxhall)
White, Mrs. Eirene


Robinson, Rt. Hn.K.(St. Pancras, N.)
Stross,SirBarnett(Stoke-on-Trent,C.)
Whitlock, William


Rodgers, William (Stockton)
Summerskill, Hn. Dr. Shirley
Wilkins, W. A.


Rogers, George (Kensington, N.)
Swain, Thomas
Willey, Rt. Hn. Frederick


Rose, Paul B.
Swingler, Stephen
Williams, Alan (Swansea, W.)


Ross, Rt. Hn. William
Symonds, J. B.
Williams, Clifford (Abertillery)


Sheldon, Robert
Taverne, Dick
Williams, W. T. (Warrington)


Shinwell, Rt. Hn. E.
Taylor, Bernard (Mansfield)
Willis, George (Edinburgh, E.)


Shore, Peter (Stepney)
Thomas, George (Cardiff, W.)
Wilson, William (Coventry, S.)


Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Thomas, Iorwerth (Rhondda, W.)
Winterbottom, R. E.


Short, Mrs. Renée (W'hampton,N.E.)
Thornton, Ernest
Wyatt, Woodrow


Silkin, John (Deptford)
Tinn, James
Yates, Victor (Ladywood)


Silkin, S. C. (Camberwell, Dulwich)
Tomney, Frank
Zilliacus, K.


Silverman, Julius (Aston)
Tuck, Raphael



Silverman, Sydney (Nelson)
Urwin, T. W.
TELLERS FOR THE NOES:




Mr. Harper and Mr. Grey.




NOES


Alison, Michael (Barkston Ash)
Courtney, Cdr. Anthony
Harris, Frederic (Croydon, N.W.[...]


Allan, Robert (Paddlngton, S.)
Craddock, Sir Beresford (Spelthorne)
Harris, Reader (Heston)


Ailason, James (Hemel Hempstead)
Crawley, Aidan
Harrison, Brian (Maldon)


Amery, Rt. Hn. Julian
Crosthwaite-Eyre, Col. Sir Oliver
Harrison, Col. Sir Harwood (Eye)


Anstruther-Gray, Rt. Hn. Sir W.
Crowder, F. P.
Harvey, John (Walthamstow, E.)


Astor, John
Cunningham, Sir Knox
Harvie Anderson, Miss


Atkins, Humphrey
Curran, Charles
Hastings, Stephen


Awdry, Daniel
Currie, G. B. H.
Hawkins, Paul


Baker, W. H. K.
Dalkeith, Earl of
Hay, John


Balniel, Lord
Dance, James
Heald, Rt. Hn. Sir Lionel


Barber, Rt. Hn. Anthony
Davies, Dr. Wyndham (Perry Barr)
Heath, Rt. Hn. Edward


Barlow, Sir John
d'Avigdor-Goldsmid, Sir Henry
Hendry, Forbes


Batsford, Brian
Dean, Paul
Higgins, Terence L.


Beamish, Col. Sir Tufton
Deedes, Rt. Hn. W. F.
Hill, J. E. B. (S. Norfolk)


Bell, Ronald
Digby, Simon Wingfield
Hirst, Geoffrey


Bennett, Sir Frederic (Torquay)
Dodds-Parker, Douglas
Hobson, Rt. Hn. Sir John


Bennett, Dr. Reginald (Gos &amp; Fhm)
Doughty, Charles
Hogg, Rt. Hn. Quintin


Berkeley, Humphry
Drayson, G. B.
Hooson, H. E.


Berry, Hn. Anthony
du Cann, Rt. Hn. Edward
Hopkins, Alan


Bessell, Peter
Eden, Sir John
Hordern, Peter


Biffen, John
Elliot, Capt. Walter (Carshalton)
Howard, Hn. G. R. (St. Ives)


Biggs-Davison, John
Elliott, R. W.(N'c'tle-upon-Tyne,N.)
Hutchison, Michael Clark


Bingham, R. M.
Emery, Peter
Irvine, Bryant Godman (Rye)


Birch, Rt. Hn. Nigel
Errington, Sir Eric
Jenkin, Patrick (Woodford)


Black, Sir Cyril
Eyre, Reginald
Jennings, J. C.


Blaker, Peter
Farr, John
Johnston, Russell (Inverness)


Bossom, Hn. Clive
Fell, Anthony
Jones, Arthur (Northants, S.)


Bowen, Roderic (Cardigan)
Fisher, Nigel
Joseph, Rt. Hn. Sir Keith


Box, Donald
Fletcher-Cooke, Charles (Darwen)
Kaberry, Sir Donald


Boyd-Carpenter, Rt. Hn. J.
Fletcher-Cooke, Sir John (S'pton)
Kerr, Sir Hamilton (Cambridge)


Boyle, Rt. Hn. Sir Edward
Foster, Sir John
Kershaw, Anthony


Braine, Bernard
Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)
Kilfedder, James A.


Brinton, Sir Tatton
Fraser, Ian (Plymouth, Sutton)
Kimball, Marcus


Brooke, Rt. Hn. Henry
Galbraith, Hn. T. G. D.
King, Evelyn (Dorset, S.)


Brown, Sir Edward (Bath)
Gardner, Edward
Kirk, Peter


Bruce-Gardyne, J.
Gibson-Watt, David
Lagden, Godfrey


Bryan, Paul
Giles, Rear-Admiral Morgan
Lambton, Viscount


Buck, Antony
Gilmour, Ian (Norfolk, Central)
Lancaster, Col. C. G.


Bullus, Sir Eric
Gilmour, Sir John (East Fife)
Langford-Holt, Sir John


Burden, F. A.
Glover, Sir Douglas
Legge-Bourke, Sir Harry


Butcher, Sir Herbert
Godber, Rt. Hn. J. B.
Lewis, Kenneth (Rutland)


Buxton, Ronald
Goodhart, Philip
Litchfield, Capt. John


Campbell, Gordon
Goodhew, Victor
Lloyd, Rt.Hn. Geoffrey (Sut'nC'dfield)


Carlisle, Mark
Gower, Raymond
Lloyd, Ian (P'tsm'th, Langstone)


Cary, Sir Robert
Grant, Anthony
Lloyd, Rt. Hn. Selwyn (Wirral)


Channon, H. P. G.
Grant-Ferris, R.
Longden, Gilbert


Chataway, Christopher
Gresham Cooke, R.
Loveys, Walter H.


Chichester-Clark, R.
Grieve, Percy
Lubbock, Eric


Clark, Henry (Antrim, N.)
Griffiths, Eldon (Bury St. Edmunds)
Lucas, Sir Jocelyn


Clark, William (Nottingham, S.)
Griffiths, Peter (Smethwick)
McAdden, Sir Stephen


Clarke, Brig. Terence (Portsmth, W.)
Grimond, Rt. Hn. J.
MacArthur, Ian


Cooke, Robert
Gurden, Harold
Mackenzie, Alasdair (Rosg&amp;Crom'ty)


Cooper-Key, Sir Neill
Hall, John (Wycombe)
Mackie, George V. (C'ness &amp; S'land)


Cordle, John
Hall-Davis, A. G. F.
McLaren, Martin


Corfield, F. V.
Hamilton, Marquess of (Fermanagh)
Maclean, Sir Fltzroy


Costain, A. P.
Hamilton, M. (Salisbury)
Macleod, Rt. Hn. Iain







McMaster, Stanley
Pike, Miss Mervyn
Teeling, Sir William


McNair-Wilson, Patrick
Pitt, Dame Edith
Temple, John M.


Maginnis, John E.
Pounder, Rafton
Thatcher, Mrs. Margaret


Maitland, Sir John
Powell, Rt. Hn. J. Enoch
Thomas, Sir Leslie (Canterbury)


Marples, Rt. Hn. Ernest
Price, David (Eastleigh)
Thomas, Rt. Hn. Peter (Conway)


Marten, Neil
Prior, J. M. L.
Thompson, Sir Richard (Croydon, S.)


Mathew, Robert
Pym, Francis
Thorneycroft, Rt. Hn. peter


Maude, Angus
Quennell, Miss J. M.
Tiley, Arthur (Bradford, W.)


Mawby, Ray
Ramsden, Rt. Hn. James
Tilney, John (Wavertree)


Maxwell-Hyslop, R. J.
Rawlinson, Rt. Hn. Sir Peter
Turton, Rt. Hn. R. H.


Maydon, Lt.-Cmdr. S. L. C.
Redmayne, Rt. Hn. Sir Martin
Tweedsmuir, Lady


Meyer, Sir Anthony
Rees-Davies, W. R.
van Straubenzee, W. R.


Mills, Peter (Torrington)
Renton, Rt. Hn. Sir David
Vaughan-Morgan, Rt. Hn. Sir John


Mills, Stratton (Belfast, N.)
Ridley, Hn. Nicholas
Vickers, Dame Joan


Miscampbell, Norman
Ridsdale, Julian
Walder, David (High Peak)


Mitchell, David
Roberts, Sir Peter (Heeley)
Walker, Peter (Worcester)


Monro, Hector
Robson Brown, Sir William
Walker-Smith, Rt. Hn. Sir Derek


More, Jasper
Rodgers, Sir John (Sevenoaks)
Wall, Patrick


Morrison, Charles (Devizes)
Roots, William
Walters, Dennis


Mott-Radclyffe, Sir Charles
Royle, Anthony
Ward, Dame Irene


Munro-Lucas-Tooth, Sir Hugh
St. John-Stevas, Norman
Weatherill, Bernard


Murton, Ossar
Scott-Hopkins, James
Webster, David


Neave, Airey
Sharples, Richard
Wells, John (Maidstone)


Nicholls, Sir Harmar
Shepherd, William
Whitelaw, William


Nicholson, Sir Godfrey
Sinclair, Sir George
Williams, Sir Rolf Dudley (Exeter)


Noble, Rt. Hn. Michael
Smyth, Rt. Hn. Brig. Sir John
Wills, Sir Gerald (Bridgwater)


Nugent, Rt. Hn. Sir Richard
Spearman, Sir Alexander
Wilson, Geoffrey (Truro)


Onslow, Cranley
Speir, Sir Rupert
Wise, A. R.


Orr, Capt. L. P. S.
Stainton, Keith
Wolrige-Gordon, Patrick


Orr-Ewing, Sir Ian
Stanley, Hn. Richard
Wood, Rt. Hn. Richard


Osborn, John (Hallam)
Steel, David (Roxburgh)
Woodhouse, Hon. Christopher


Osborne, Sir Cyril (Louth)
Stodart, Anthony
Woodnutt, Mark


Page, John (Harrow, W.)
Stoddart-Scott, Col. Sir Malcolm
Yates, William (The Wrekin)


Page, R. Graham (Crosby)
Studholme, Sir Henry
Younger, Hn. George


Pearson, Sir Frank (Clitheroe)
Summers, Sir Spencer



Peel, John
Talbot, John E.
TELLERS FOR THE NOES:


Percival, Ian
Taylor, Sir Charles (Eastbourne)
Mr. Dudley Smith and


Peyton, John
Taylor, Edward M. (G'gow,Cathcart)
Mr. G. Johnson Smith.


Pickthorn, Rt. Hn. Sir Kenneth
Taylor, Frank (Moss Side)

Mr. MacDermot: I beg to move Amendment No. 641, in page 105, line 6, to leave out from "in" to "then" in line 9 and to insert:
each of the four years of assessment 1962–63, 1963–64, 1964–65 and 1965–66".
Would it be convenient, Mr. Steele, if with this Amendment we discuss the following Amendment, No. 642, in line 12, which also appears in the name of my right hon. Friend the Chancellor of the Exchequer?

The Temporary Chairman (Mr. Thomas Steele): Yes, if the Committee has no objection.

Mr. MacDermot: Thank you, Mr. Steele. The two Amendments relate to subsection (4), which we have been discussing and which is concerned with—[Interruption.]

The Temporary Chairman: Order. If hon. Members are leaving the Chamber, they might do so quietly.

Mr. MacDermot: If I may resume more quietly, the two Amendments relate to subsection (4), which is concerned with cutting down the overspill relief where a company increases its dividends. The

general effect of the Amendments is that regardless of the year chosen by a company as the base year, the company's standard year for the dividend comparison will be the most favourable year of the years 1962–63 to 1965–66, subject only to the exclusion, which already appears in the Bill, in respect of a year in which there are exceptionally high dividends.
This high dividend exclusion in relation to the new year which we have added—1965–66—is achieved by prescribing that for that year any part of a dividend caught by the forestalling provisions in Clause 78 is to be left out of account. In relation to the earlier years, the Amendments in effect reproduce the rule which is contained in the Clause as drafted. In addition, the provisions in the Bill relating to increased capital are, in effect, reproduced in paragraph (c) of the new proviso.

Mr. Peter Emery: We are pleased to be able, at least partially, to welcome these Amendments, because they go towards doing some of the things which we asked the Committee to approve in our Amendment which was defeated by such a slender majority. The redrafted


Clause looks rather like the Stars and Stripes if one marks in red the number of deletions and alterations. Of the 16 lines of subsection (4), perhaps three whole lines of the original draft remain. These Amendments are of some help, however, and they go a little way to meeting a number of the points which, I know have been put to the Chancellor by certain firms. We could repeat all the arguments that we made in the last debate on dividend limitation. I have no intention of boring the Committee in that way, although our arguments on the previous Amendment are equally applicable on this one.
There is one point which I wish to put to the Financial Secretary. I made passing reference to it ealier but did not get a reply. I should like him, with his right hon. Friend the Chancellor, to consider the four-fifths figure on dividend limitation. I accept that our Amendment included a level of two-fifths, but there is room for improvement between the two. I ask no more than that the point should be looked at again before Report, although I realise that an alteration such as we suggest might be slightly expensive. My researches have not been able to provide the likely figure of cost. If the hon. and learned Gentleman does not have the figure with him, I do not propose to press the matter now as I have not given notice of the point. I ask him, however, to consider whether the point that we have made could not be partially met by going one stage further and considering whether some other level would not be better for industry.

Mr. MacDermot: I should like to respond to the hon. Member in the spirit in which he has spoken, making it clear that there is no question of any commitment being involved. The immediate reaction of my right hon. Friend the Chancellor is that the four-fifths provision will be expensive and that any further reduction would be unacceptable. I do not, however, have with me the actual figures of the calculation. Perhaps that is an added reason why we should accede to the request which has been made, it being clear that we are not holding out any kind of hope or encouragement.

Mr. Peter Emery: I thank the hon. and learned Gentleman for what he has

said. He has accepted my request in the spirit in which I made it. Perhaps, to have time on Report, he could let me have the figures when he has them and we can then consider what action, if any, we need to take.

Amendment agreed to.

Further Amendment made: In page 105, line 12, leave out from "of" to "as" in line 17 and insert:
whichever excess is the least:
Provided that—

(a) if the net amount of the dividends in any of the years 1962–63, 1963–64 and 1964–65 is higher than the corresponding amount for the year before that year, and is also higher than the corresponding amount for the year after (adjusted, if it is the year 1965–66, for the increase in the standard rate of income tax), the year to which this applies shall be left out of account, but if it applies to the year 1962–63, the year 1961–62 shall be substituted; and
(b) in determining whether there is any such excess in the case of the year 1965–66, or what is the amount of that excess, there shall be deducted from the dividends paid in that year any amount treated under section 78 of this Act as paid in the following year; and
(c) if between any earlier year of assessment and that for which relief is claimed there has been any increase in the paid up share capital of the company for any new consideration received by the company, then the dividends paid in the earlier year shall be treated as increased by such amount".— [Mr. Callaghan.]

Mr. MacDermot: I beg to move Amendment No. 643, in page 105, line 20, to leave out subsection (5) and to insert:

(5) Where, in any year of assessment for which relief is claimed, the company by virtue of an election under section 44 of this Act pays any dividends without deduction of income tax, then the relief shall be reduced in the proportion which those dividends bear to the total amount of the dividends paid by the company in that year or, if all the dividends so paid are paid without deduction of income tax, relief shall not be given to the company for that year.
(6) In relation to the cases dealt with by the Schedule (Supplementary provisions about transitional relief for existing companies with overseas trading income) to this Act, this section shall have effect subject to the provisions of that Schedule.

I can move the Amendment shortly. It does three things. First, it deletes the existing subsection (5), which is concerned with arrangements entered into between companies for relating dividends.
This subject is now dealt with in a somewhat amended form in paragraph (4) of the new Schedule. Secondly, in the new subsection (6) the Amendment introduces the new Schedule. Finally and substantively, in the new subsection (5) it introduces a new provision under which, where, because of an election under Clause 44, a company pays dividends without deduction of tax, the overspill relief is to be reduced in the proportion which those dividends bear to the total dividends paid by the company in the year. Where all the dividends are paid without deduction of Income Tax no overspill relief will be given. This, of course, is again in accordance with the principle which I stated to the Committee earlier, which is, that it is our intention that the relief should not exceed the actual tax paid on the dividends.

7.0 p.m.

Mr. Peter Emery: Again, I think we recognise what the Chancellor is trying to do, and much of this will come up again on the new Schedule. It seems to me that the two points which I have to make I can easily defer till the debate on the new Schedule, and to facilitate getting on with the Clause I will do no more now than say that we are not willing to oppose this but we shall have a number of points relevant to this and better raised, perhaps, for the convenience of the Chancellor and the Committee, on the new Schedule.

Amendment agreed to.

Mr. Peyton: I beg to move Amendment No. 527, in page 105, line 44, at the end to insert:
(7) (a) Where a company has received such a sum as is mentioned in subsection (6), an amount equivalent to that sum may be paid by the company as a dividend which shall be exempt from income tax other than surtax and shall not be treated as a chargeable gain for the purposes of Part III of this Act;
(b) where such a dividend as is mentioned in (a) above is received by a company, that dividend shall be treated for the purposes of this section (including any further application of this subsection) as if it were a sum received by the company under subsection (6).
In the present atmosphere of great cordiality, and being conscious of the waves which have been flowing from the Treasury Bench, I move this Amendment with some confidence. I do not wish to inject any acid into the atmosphere,

but I should like to observe that, in our view, the Government have most wrongly and improperly attempted to effect a notional divorce between a company and its shareholders. We believe this is wrong, and it makes nonsense of any thinking which goes on subsequently. The Government affect to believe that a shareholder is a useless animal, redundant as a rhinoceros, in the Chancellor's phrase, for the purposes of raising money, and that really he can be fleeced. I am sorry I have got a bit mixed up about the animals: I am not suggesting that a rhinoceros can be fleeced. However, the Government appear to believe that the shareholder is someone who can be fleeced without affecting the company itself.
I am sorry that the example of the Shell company keeps on occurring, but it does seem to me one of the main victims of these proposals. I remind Treasury Ministers of the fact that since their proposals were published the borrowing position of this immense company has been altered very much for the worse. I think I am right in saying—I speak without the book here—that before the Bill was published the yield at which Shell was able to borrow was 4½per cent. as compared with Standard Oil of New Jersey at 4½per cent. also and Texaco at 3¾ per cent. The position now, after the full effect of the Government's proposals has been felt and assessed, is that Shell can borrow only at 6½per cent. This is a very material weakening of the company's borrowing position, due to the swingeing blows which are dealt to shareholders.
The Government have talked about giving full compensation. I appreciate, and I would not dream of challenging them on this, that their intention was that people who suffered should in the transitional period be fully compensated. I do not wish to quarrel about the words of drafting, but the relief which is made available to the company is being passed on to the shareholder, subject, of course, to its being treated as a distribution and subject to Income Tax.
Indeed, I think I am right in saying, taking the Shell case—and I have not got the exact figures here—that the loss to the shareholders consequent upon the Government's proposals is some£17½


million. After the first flush of the proposals, without the Amendments, it would appear that the result was that Shell shareholders were compensated only to the extent of£4½million. Of course, they must pay Income Tax at the standard rate, which the company was obliged to deduct on paying.
This seems to us to be wrong. The effect of this is to raise that£4½million by£1 million or so to something like£5½million. I do not really believe that this is right or proper. I think the shareholder is very unfortunately regarded by many Members of the party opposite—I hope not Treasury Ministers—as being a wholly useless part of society. I hope they will remember that the private limited company has been very much at the root of the whole free enterprise system on which this country did grow great. To banish or to attempt to exorcise the shareholder from it at this stage of our development is, in our views, wholly wrong and shows a misconception of the position.
We have had this point coming up again and again on the Amendments, and I understand that if the Government move further the result may be to increase the compensation to some beyond what it ought to be. Of course, the Government find that a very useful argument, but on the other hand I believe that the powers of the Revenue are such that provision could be made to see that no shareholder is compensated over and above what he ought to be given.
I believe that the Government are really under some moral obligation in this matter. I think I ought to say—I confess I had not thought of this before this moment—that I am a very minor shareholder in Shell; only a minor one. I hope the Government will not think that that is what animates me in saying what I am saying now, but I believe that they are under a very strong obligation to be true to what many people thought they meant, namely, to see that all those who were damaged by these provisions were at any rate in the transitional period fully compensated for their loss. I hope the Government may be moved to consider this.
May I put it to them in this way. I am quite sure that a lot of people who are

rather deep-rooted opponents of the present Administration would be surprised, and would take it as evidence of great open-mindedness, if the Government could see their way to accepting an Amendment of this kind. Of course, I would readily admit that there is no magic whatever in the words; and if the Financial Secretary or the Chancellor himself could say that they would look at this again and bring forward on Report some Amendment to meet this point, that of course, would be most welcome.
Here I am making a plea for a particular section of the free enterprise system which is not always the most popular. I recognise that, but on the other hand I believe it to be most important. I hope that before very long we shall have—this is not a particularly partisan remark—a Government in office who are pledged to the perfectly simple principle of reinforcing success wherever it may occur, and not seeking on all occasions to take swinging blows at it, and who will at least appear to treat it as though it were not a criminal offence. I move the Amendment in the hope that the Treasury Ministers may feel inclined to give it, at least, their very careful consideration.

Mr. MacDermot: Until the last sentence the hon. Member for Yeovil (Mr. Peyton) moved his Amendment with great moderation and put his argument as persuasively as I think it could be put, but, in view of the argument that we have had already, I do not think he will be surprised to hear me say that I think the moment has come for me to try to staunch the flow of generosity from the Treasury Bench, because although the hon. Gentleman has been arguing his case in relation to a particular class of shareholders who would perhaps be worse hit than others as a result of the introduction of these tax changes, the Amendment would go very wide indeed. It would enable a company, on receiving an amount of overspill relief, to pay out as dividend an equivalent amount which would be entirely free of Income Tax and of Capital Gains Tax in the recipient's hands; and were the recipient a company, the amount would not be taxable in its hands and would be treated in the same way as any overspill relief that it had itself received.
At the risk of wearying the Committee, I must remind hon. Members once again


that the object of the overspill relief is to increase the funds of a company operating overseas out of which it can pay dividends to the same extent as, and not more, than the funds of a company operating at home will be increased by the reduction in the charge on its profits from 56¼per cent. to, say, 40 per cent. This is stating it broadly. I am not suggesting that that exact mathematical result will be achieved in every case. Just as it would be contrary to the basic principle of Corporation Tax to allow a company operating at home to distribute part of its increased funds tax free, so it would be equally objectionable to allow this to happen in respect of income earned overseas.
The effect of the Amendment would be to put the shareholders of an overseas trading corporation in a more favourable position than the shareholders of a domestic company trading purely at home. I have some complicated calculations and figures which would illustrate that convention, if anyone wants them; but, as I indicated before, I think that we have had our minds filled sufficiently with arithmetic for now. I must therefore advise the Committee to reject the Amendment.

Mr. John Harvey: We on this side of the Committee regret that the generosity has to be staunched. We have noticed that it is usually somewhere between midnight and three or four o'clock in the morning that the generosity seems to be a little more obvious, but looking at the clock now I doubt whether I could keep this one going that long in the hope that by then the Financial Secretary might give in.
I have one point to make about the difference between a shareholder receiving a dividend from a company trading in the United Kingdom and one trading overseas. It seems to me that where the dividend comes from a company trading overseas a shareholder suffers a disadvantage by virtue of the double taxation arrangements involved. I concede some of what the Financial Secretary has said about the possibility that this Amendment might be a little over-generous to the shareholder receiving a dividend from an overseas investment by comparison with an investment in this country, but surely it would not be beyond the

wit of the Treasury to devise a formula whereby there was at least some sort of fair compensation to the shareholder in a company trading overseas which would give him something nearer the return to which he had been accustomed without penalising the company.
This has come up time and time again in these debates, and I wonder whether the Financial Secretary could look at this again, because it seems to me that there is not equality of treatment at present as between the investor in a British company and an investor in a company relying wholly or partly on profits earned overseas.

7.15 p.m.

Mr. Hirst: I agree with what my hon. Friend the Member for Waltham-stow, East (Mr. John Harvey) has just said. The Financial Secretary said that he could not accept the Amendment because it would not put things on an equal basis. I thought that this was merely for transitional purposes to compensate companies and shareholders for the form of the new taxation.
If it can be argued—and it may be—that a number of shareholders have benefited in the past from the O.T.C. arrangement—and I do not think that anybody would seek to argue against that—in this instance, by reason of the nature of this tax, they are to be adversely affected. That is the point. Surely the purpose of the Clause—and this Amendment in relation to it is trying to find its way through that purpose—is to compensate the companies and their shareholders—and, like my hon. Friends, I refuse to accept this complete separation which I think is a nonsense—for the circumstance of losing something which might have been to their advantage.
The purpose of the transitional payment is to compensate people over a certain period of time for a changeover to a tax which the Bill admits, and therefore the Chancellor admits, acts unfavourably against them in the first instance. It is therefore not a question of equity, but of seeking to give them some compensation for an inequality which the new form of taxation brings about by comparison with the taxation to which they were formerly subjected.

Mr. Peter Emery: We cannot leave this in the form that it appears it is going to be left. We can see that the Chancellor is somewhat concerned about this. There is no doubt that under this form of taxation the shareholder will be appreciably worse off in any distribution by these overseas companies than he was previously.
>
I have an involved example which has been sent to me, and I could go through it, but I do not intend to do so. Using a foreign income of£20,000, it shows that under the old system the distribution, tax free, to shareholders would be about£9,000, while under the new system the amount received by shareholders after the tax overspill and the withholding have been taken into account will decrease to£6,860. If the Amendment were accepted that sum would be up not to anything like£9,000, but only to£7,964.

Sir Harmar Nicholls: My hon. Friend is giving a specific example which can be understood. Is there any reason why the Financial Secretary should not tell us whether he does,

or does not, accept those figures? If they stand as put forward by my hon. Friend, that is clearly a point with which the Financial Secretary ought to deal. Does he accept the truth of the figures as the Bill stands?

Mr. Emery: I do not wish to speak for the Financial Secretary, but there is no doubt about the figures that I have given.
The case that we are deploying is that the shareholder will be that worse off. I have no intention of accepting the suggestion of my hon. Friend the Member for Walthamstow, East (Mr. John Harvey) that I might speak for another eight hours. After the admirable way in which the Amendment has been moved by my hon. Friend the Member for Yeovil (Mr. Peyton), the proper way to meet the position is to ask the Committee to divide on this point here and now.

Question put, That those words be there inserted:—

The Committee divided: Ayes 277, Noes 283.

Division No. 196.]
AYES
[7.20 p.m.


Alison, Michael (Barkston Ash)
Campbell, Gordon
Fletcher-Cooke, Charles (Darwen)


Allan, Robert (Paddington, S.)
Carlisle, Mark
Fletcher-Cooke, Sir John (S'pt[...]n)


Allason, James (Hemel Hempstead)
Cary, Sir Robert
Foster, Sir John


Amery, Rt. Hn. Julian
Channon, H. P. G.
Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)


Anstruther-Gray, Rt. Hn. Sir W.
Chataway, Christopher
Fraser, Ian (Plymouth, Sutton)


Ast[...]or, John
Chichester-Clark, R.
Galbraith, Hn. T. G. D.


Atkins, Humphrey
Clark, Henry (Antrim, N.)
Gardner, Edward


Awdry, Daniel
Clark, William (Nottingham, S.)
Gibson-Watt, David


Baker, W. H. K.
Clarke, Brig. Terence (Portsmth, W.)
Giles, Rear-Admiral Morgan


Balniel, Lord
Cooke, Robert
Gilmour, Ian (Norfolk, Central)


Barber, Rt. Hn. Anthony
Cooper-Key, Sir Neill
Gilmour, Sir John (East Fife)


Barlow, Sir John
Cordle, John
Glover, Sir Douglas


Batsford, Brian
Corfield, F. V.
Godber, Rt. Hn. J. B.


Beamish, Col. Sir Tufton
Costain, A. P.
Goodhart, Philip


Bell, Ronald
Courtney, Cdr. Anthony
Goodhew, Victor


Bennett, Dr. Reginald (Gos &amp; Fhm.)
Craddock, Sir Beresford (Spelthorne)
Gower, Raymond


Berkeley, Humphry
Crawley, Aidan
Grant, Anthony


Berry, Hn. Anthony
Crosthwaite-Eyre, Col. Sir Oliver
Gresham Cooke, R.


Bessell, Peter
Crowder, F. P.
Grieve, Percy


Biffen, John
Cunningham, Sir Knox
Griffiths, Eldon (Bury St. Edmunds)


Biggs-Davison, John
Curran, Charles
Griffiths, Peter (Smethwick)


Bingham, R. M.
Currie, G. B. H.
Gurden, Harold


Birch, Rt. Hn. Nigel
Dalkeith, Earl of
Hall, John (Wycombe)


Black, Sir Cyril
Dance, James
Hall-Davis, A. G. F.


Blaker, Peter
Davies, Dr. Wyndham (Perry Barr)
Hamilton, Marquess of (Fermanagh)


Bossom, Hn. Clive
d'Avigdor-Goldsmid, Sir Henry
Hamilton, M. (Salisbury)


Bowen, Roderic (Cardigan)
Dean, Paul
Harris, Frederic (Croydon, N.W.)


Box, Donald
Deedes, Rt. Hn. W. F.
Harris, Reader (Heston)


Boyd-Carpenter, Rt. Hn. [...].
Digby, Simon Wingfield
Harrison, Brian (Maldon)


Boyle, Rt. Hn. Sir Edward
Dodds-Parker, Douglas
Harrison, Col. Sir Harwood (Eye)


Braine, Bernard
Doughty, Charles
Harvey, John (Walthamstow, E.)


Brinton, Sir Tatton
Drayson, G. B.
Harvie Anderson, Miss


Brooke, Rt. Hn. Henry
du Cann, Rt. Hn. Edward
Hastings, Stephen


Brown, Sir Edward (Bath)
Eden, Sir John
Hawkins, Paul


Bruce-Gardyne, J.
Elliot, Capt. Walter (Carshalton)
Hay, John


Bryan, Paul
Emery, Peter
Heald, Rt. Hn. Sir Lionel


Buck, Antony
Errington, Sir Eric
Heath, Rt. Hn. Edward


Bullus, Sir Eric
Eyre, Reginald
Hendry, Forbes


Burden, F. A.
Farr, John
Higgins, Terence L.


Butcher, Sir Herbert
Fell, Anthony
Hill, J. E. B. (S. Norfolk)


Buxton. Ronald
Fisher, Nigel
Hirst, Geoffrey




Hobson, Rt. Hn. Sir John
Meyer, Sir Anthony
Smyth, Rt. Hn. Brig. Sir John


Hogg, Rt. Hn. Quintin
Mills, Peter (Torrington)
Spearman, Sir Alexander


Hooson, H. E.
Mills, Stratton (Belfast, N.)
Speir, Sir Rupert


Hopkins, Alan
Miscampbell, Norman
Stainton, Keith


Hordern, Peter
Mitchell, David
Stanley, Hn. Richard


Hornsby-Smith, Rt. Hn. Dame P.
Monro, Hector
Steel, David (Roxburgh)


Howard, Hn. G. R. (St. Ives)
More, Jasper
Stodart, Anthony


Hunt, John (Bromley)
Morrison, Charles (Devizes)
Stoddart-Scott, Col. Sir Malcolm


Hutchison, Michael Clark
Mott-Radclyffe, Sir Charles
Studholme, Sir Henry


Irvine, Bryant Codman (Rye)
Munro-Lucas-Tooth, Sir Hugh
Summers, Sir Spencer


Jenkin, Patrick (Woodford)
Murton, Oscar
Talbot, John E.


Jennings, J. C.
Neave, Airey
Taylor, Sir Charles (Eastbourne)


Johnson Smith, G. (East Grinstead)
Nicholls, Sir Harmar
Taylor, Edward M. (G'gow,Cathcart)


Johnston, Russell (Inverness)
Nicholson, Sir Godfrey
Taylor, Frank (Moss Side)


Jones, Arthur (Northants, S.)
Noble, Rt. Hn. Michael
Teeling, Sir William


Joseph, Rt. Hn. Sir Keith
Nugent, Rt. Hn. Sir Richard
Temple, John M.


Kaberry, Sir Donald
Onslow, Cranley
Thatcher, Mrs. Margaret


Kerr, Sir Hamilton (Cambridge)
Orr, Capt. L. P. S.
Thomas, Sir Leslie (Canterbury)


Kershaw, Anthony
Orr-Ewing, Sir Ian
Thomas, Rt. Hn. Peter (Conway)


Kilfedder, James A.
Osborn, John (Hallam)
Thompson, Sir Richard (Croydon,S.)


Kimball, Marcus
Osborne, Sir Cyril (Louth)
Thorneycroft, Rt. Hn. Peter


King, Evelyn (Dorset, S.)
Page, John (Harrow, W.)
Tiley, Arthur (Bradford, W.)


Kirk, Peter
Page, R. Graham (Crosby)
Tilney, John (Wavertree)


Lagden, Godfrey
Peel, John
Turton, Rt. Hn. R. H.


Lambton, Viscount
Percival, Ian
Tweedsmuir, Lady


Lancaster, Col. C. G.
Peyton, John
van Straubenzee, W. R.


Langford-Holt, Sir John
Pickthorn, Rt. Hn. Sir Kenneth
Vaughan-Morgan, Rt. Hn. Sir John


Legge-Bourke, Sir Harry
Pike, Miss Mervyn
Vickers, Dame Joan


Lewis, Kenneth (Rutland)
Pitt, Dame Edith
Walder, David (High Peak)


Litchlield, Capt. John
Pounder, Rafton
Walker, Peter (Worcester)


Lloyd,Rt.Hn. Geoffrey (Sut'nC'dfield)
Powell, Rt. Hn. J. Enoch
Walker-Smith, Rt. Hn. Sir Derek


Lloyd, Ian (P'tsm'th, Langstone)
Price, David (Eastleigh)
Wall, Patrick


Lloyd, Rt. Hn. Selwyn (Wirral)
Prior, J. M. L.
Walters, Dennis


Longden, Gilbert
Pym, Francis
Ward, Dame Irene


Loveys, Walter H.
Quennell, Miss J. M.
Weatherill, Bernard


Lubbock, Eric
Ramsden, Rt. Hn. James
Webster, David


Lucas, Sir Jocelyn
Rawlinson, Rt. Hn. Sir Peter
Wells, John (Maidstone)


McAdden, Sir Stephen
Redmayne, Rt. Hn. Sir Martin
Whitelaw, William


MacArthur, Ian
Rees-Davies, W. R.
Williams, Sir Rolf Dudley (Exeter)


Mackenzie, Alasdair (Ross&amp;Crom'ty)
Renton, Rt. Hn. Sir David
Wills, Sir Gerald (Bridgwater)


Maclean, Sir Fitzroy
Ridley, Hn. Nicholas
Wilson, Geoffrey (Truro)


Macleod, Rt. Hn. Iain
Ridsdale, Julian
Wise, A. R.


McMaster, Stanley
Roberts, Sir Peter (Heeley)
Wolrige-Gordon, Patrick


McNair-Wilson, Patrick
Robson Brown, Sir William
Wood, Rt. Hn. Richard


Maginnis, John E.
Rodgers, Sir John (Sevenoaks)
Woodhouse, Hon. Christopher


Maitland, Sir John
Roots, William
Woodnutt, Mark


Marples, Rt. Hn. Ernest
Royle, Anthony
Yates, William (The Wrekin)


Marten, Neil
St. John-Stevas, Norman
Younger, Hn. George


Mathew, Robert
Scott-Hopkins, James



Maude, Angus
Sharples, Richard
TELLERS FOR THE NOES:


Mawby, Ray
Shepherd, William
Mr. McLaren and


Maxwell-Hyslop, R. J.
Sinclair, Sir George
Mr. R. W. Elliott.


Maydon, Lt.-Cmdr. S. L. C.
Smith, Dudley (Br'ntf'd &amp; Chiswick)





NOES


Abse, Leo
Brown, Hugh D. (Glasgow, Provan)
Delargy, Hugh


Albu, Austen
Brown, R. W. (Shoreditch &amp; Fbury)
Dell, Edmund


Aliaun, Frank (Salford, E.)
Buchan, Norman (Renfrewshire, W.)
Dempsey, James


Alldritt, Walter
Buchanan, Richard
Diamond, John


Allen, Scholefield (Crewe)
Butler, Herbert (Hackney, C.)
Dodds, Norman


Armstrong, Ernest
Butler, Mrs. Joyce (Wood Green)
Doig, Peter


Atkinson, Norman
Callaghan, Rt. Hn. James
Donnelly, Desmond


Bacon, Miss Alice
Carmichael, Neil
Driberg, Tom


Bagier, Cordon A. T.
Carter-Jones, Lewis
Duffy, Dr. A. E. P.


Barnett, Joel
Castle, Rt. Hn. Barbara
Dunn, James A.


Baxter, William
Chapman, Donald
Dunnett, Jack


Beaney, Alan
Coleman, Donald
Edelman, Maurice


Bellenger, Rt. Hn. F. J.
Conlan, Bernard
Edwards, Rt. Hn. Ness (Caerphilly)


Bence, Cyril
Corbet, Mrs. Freda
English, Michael


Benn, Rt. Hn. Anthony Wedgwood
Cousins, Rt. Hn. Frank
Ennals, David


Bennett, J. (Glasgow, Bridgeton)
Craddock, George (Bradford, S.)
Ensor, David


Binns, John
Crawshaw, Richard
Evans, Albert (Islington, S.W.)


Bishop, E. S.
Cronin, John
Evans, Ioan (Birmingham, Yardley)


Blackburn, F.
Crosland, Rt. Hn. Anthony
Fernyhough, E.


Blenkinsop, Arthur
Crossman, Rt. Hn. R. H. S.
Finch, Harold (Bedwellty)


Boardman, H.
Cullen, Mrs. Alice
Fletcher, Sir Eric (Islington, E.)


Boston, T. G.
Dalyell, Tam
Fletcher, Ted (Darlington)


Bowden, Rt. Hn. H. W. (Leics, S.W.)
Darling, George
Fletcher, Raymond (Ilkeston)


Boyden, James
Davies, G. Elfed (Rhondda, E.)
Floud, Bernard


Braddock, Mrs. E. M.
Davies, Harold (Leek)
Foley, Maurice


Bradley, Tom
Davies, Ifor (Gower)
Foot, Michael (Ebbw Vale)


Bray, Dr. Jeremy
Davies, S. O. (Merthyr)
Fraser, Rt. Hn. Tom (Hamilton)


Brown, Rt. Hn. George (Belper)
de Freitas, Sir Geoffrey
Freeson, Reginald







Galpern, Sir Myer
McBride, Neil
Roberts, Goronwy (Caernarvon)


Garrett, W. E.
McCann, J.
Robertson, John (Paisley)


Garrow, A.
MacColl, James
Robinson, Rt. Hn.K.(St. Pancras, N.)


George, Lady Megan Lloyd
MacDermot, Niall
Rodgers, William (Stockton)


Ginsburg, David
McGuire, Michael
Rogers, George (Kensington, N.)


Gourlay, Harry
McKay, Mrs. Margaret
Rose, Paul B.


Gregory, Arnold
Mackenzie, Gregor (Rutherg[...]en)
Ross, Rt. Hn. William


Griffiths, David (Rother Valley)
Mackie, John (Enfield, E.)
Sheldon, Robert


Griffiths, Rt. Hn. James (Llanelly)
McLeavy, Frank
Shinwell, Rt. Hn. E.


Griffiths, Will (M'chester, Exchange)
MacMillan, Malcolm
Shore, Peter (Stepney)


Gunter, Rt. Hn. R. J.
Mahon, Peter (Preston, S.)
Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)


Hale, Leslie
Mahon, Simon (Bootle)
Short, Mrs. Renée (W'hampton,N.E.)


Hamilton, James (Bothwell)
Mallalieu,J.P.W.(Hudderstield,E.)
Silkin, John (Deptford)


Hamilton, William (West Fife)
Manuel, Archie
Silkin, S. C. (Camberwell, Dulwich)


Hamling, William (Woolwich, W.)
Mapp, Charles
Silverman, Julius (Aston)


Hannan, William
Marsh, Richard
Silverman, Sydney (Nelson)


Harper, Joseph
Mason, Roy
Skeffington, Arthur


Harrison, Walter (Wakefield)
Maxwell, Robert
Slater, Mrs. Harriet (Stoke, N.)


Hart, Mrs. Judith
Mayhew, Christopher
Slater, Joseph (Sedgefield)


Hattersley, Roy
Mellish, Robert
Small, William


Hazell, Bert
Mendelson, J. J.
Smith, Ellis (Stoke, S.)


Heffer, Eric S.
Mikardo, Ian
Snow, Julian


Henderson, Rt. Hn. Arthur
Millan, Bruce
Soskice, Rt. Hn. Sir Frank


Herbison, Rt. Hn. Margaret
Miller, Dr. M. S.
Spriggs, Leslie


Hill, J. (Midlothian)
Milne, Edward (Blyth)
Stonehouse, John


Hobden, Dennis (Brighton, K'town.)
Molloy, William
Stones, William


Holman, Percy
Morris, Alfred (Wythenshawe)
Strauss, Rt. Hn. G. R. (Vauxhall)


Homer, John
Morris, Charles (Openshaw)
Stross,SirBarnett(Stoke-on-Trent,C.)


Houghton, Rt. Hn. Douglas
Morris, John (Aberavon)
Summerskill, Hn. Dr. Shirley


Howarth, Harry (Weillngborough)
Murray, Albert
Swain, Thomas



Neal, Harold
Swingler, Stephen


Howarth, Robert L. (Bolton, E.)
Newens, Stan
Symonds, J. B.


Howell, Denis (Small Heath)
Noel-Baker, Francis (Swindon)
Taverne, Dick


Howie, W.
Noel-Baker,Rt.Hn.Philip(Derby,S.)
Taylor, Bernard (Mansfield)


Hoy, James
Norwood, Christopher
Thomas, George (Cardiff, W.)


Hughes, Emrys (S. Ayrshire)
Oakes, Gordon
Thomas, Iorwerth (Rhondda, W.)


Hughes, Hector (Aberdeen, N.)
Ogden, Eric
Thomson, George (Dundee, E.)


Hunter, Adam (Dunfermline)
O'Malley, Brian
Thornton, Ernest


Hunter, A. E. (Feltham)
Oram, Albert E. (E. Ham, S.)
Tinn, James


Hynd, H. (Accrington)
Orbach, Maurice
Tomney, Frank


Irvine, A. J. (Edge Hill)
Oswald, Thomas
Tuck, Raphael


Irving, Sydney (Dartford)
Owen, Will
Urwin, T. W.


Janner, Sir Barnett
Padley, Walter
Varley, Eric G.


Jeger, George (Goole)
Page, Derek (King's Lynn)
Wainwright, Edwin


Jeger,Mrs.Lena(H 'b'n&amp;St.P'cras,S.)
Paget, R. T.
Walden, Brian (All Saints)


Jenkins, Hugh (Putney)
Palmer, Arthur
Walker, Harold (Doncaster)


Johnson, Carol (Lewisham, S.)
Panned, Rt. Hn. Charles
Wallace, George


Jones, Dan (Burnley)
Park, Trevor (Derbyshire, S.E.)
Warbey, William


Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Parker, John
Watkins, Tudor


Jones, J. Idwal (Wrexham)
Parkin, B. T.
Weitzman, David


Jones, T. W. (Merioneth)
Pavitt, Laurence
Wells, William (Walsall, N.)


Kelley, Richard
Pearson, Arthur (Pontypridd)
White, Mrs. Eirene


Kenyon, Clifford
Peart, Rt. Hn. Fred
Whitlock, William


Kerr, Mrs. Anne (R'ter &amp; Chatham)
Pentland, Norman
Wilkins, W. A.


Kerr, Dr. David (W'worth, Central)
Perry, Ernest G.
Willey, Rt. Hn. Frederick


Lawson, George
Popplewell, Ernest
Williams, Alan (Swansea, W.)


Leadbitter, Ted
Prentice, R. E.
Williams, Clifford (Abertillery)


Ledger, Ron
Price, J. T. (Westhoughton)
Williams, W. T. (Warrington)


Lee, Rt. Hn. Frederick (Newton)
Probert, Arthur
Willis, George (Edinburgh, E.)


Lee, Miss Jennie (Cannoek)
Pursey, Cmdr. Harry
Wilson, William (Coventry, S.)


Lever, Harold (Cheetham)
Randall, Harry
Winterbottom, R. E.


Lever, L. M. (Ardwick)
Rankin, John
Wyatt, Woodrow


Lewis, Arthur (West Ham, N.)
Redhead, Edward
Yates, Victor (Ladywood)


Lewis, Ron (Carlisle)
Rees, Merlyn
Zilliacus, K.


Lipton, Marcus
Reynolds, G. W.



Lomas, Kenneth
Rhodes, Geoffrey
TELLERS FOR THE NOES:


Loughlin, Charles
Richard, Ivor
Mr. Alan Fitch and


Mabon, Dr. J. Dickson
Roberts, Albert (Normanton)
Mr. Charles Grey.

7.30 p.m.

Mr. MacDermot: I beg to move Amendment No. 644, in page 105, line 46, to leave out from the beginning to the end of line 2 on page 106.
This Amendment is consequential on Amendment No. 638, which the Committee agreed to earlier. It deletes the definition of the company's taxed income in the base year. This definition is no longer

necessary, now that subsection (1) is to be amended so that the overspill relief is no longer restricted to the proportion representing the distributed profits.

Amendment agreed to.

Mr. MacDermot: I beg to move Amendment No. 789, in page 106, line 5, after "year" to insert:
(omitting any amount on which relief from tax is allowed otherwise than by way of credit


for foreign tax or on which the company charges the tax against any other person otherwise than under section 184 of the Income Tax Act 1952)".

The Temporary Chairman (Mr. Grant-Ferris): With this Amendment, it would be in order to take Amendment No. 767, in page 106, line 3, to leave out from "income" to the end of line 7 and to insert
from a source in the base year are references to income from the source as computed for the charge to income tax for that year, after deducting any relief under section 341 or section 425 of the Income Tax Act 1952 which was allowed against that income and any payments to which section 169 of that Act applied which were treated as having been made out of that income:
(b) reference to the profits tax on the Income in the base year are references to the profits tax on the income of the period used in the computation of the income for the charge to income tax for the base year".

Mr. MacDermot: Amendment No. 789 corrects an uncertainty which exists in the Clause as printed, and corrects it in favour of the taxpayer. I think it covers the same point as Amendment No. 767, standing in the name of the hon. Member for Yeovil (Mr. Peyton) and some of his hon. Friends. It would be ungenerous of me not to recognise that that Amendment drew attention to this point. We think that perhaps our wording meets the point more satisfactorily. It makes it clear that the income in the base year on which there is a notional charge to Corporation Tax will be the amount of that income as computed before the charge to Income Tax less any amount on which relief from tax is allowed, or on which the company charges the tax against another person other than in paying a dividend.
I am afraid that sounds rather technical. In other words, it means that the income, taken as the income of the base year, will exclude those items which will be allowable as a deduction in future under the new Corporation Tax rules in arriving at the amount on which Corporation Tax is payable. As I said before, it resolves the uncertainty in favour of the taxpayer.

Mr. Peyton: All that remains for me to say is that I must have got my sense of timing wrong just now when I expected a generous reaction from the Treasury Bench, only to be sadly, suddenly and

shockingly disappointed over a matter in which they could well and properly have made a generous concession, which would have been most welcome to us. However, they have now done it. The Financial Secretary has been good enough to say that we called his attention to a valid point. I gladly accept his assurance that the words which he has put down have achieved the purpose which we set out to achieve. I am very grateful to him for doing so.

Amendment agreed to.

Mr. MacDermot: I beg to move Amendment No. 790, in page 106, line 38, after "relief" to insert:
(a trade exercised in more than one territory being for this purpose regarded as so many separate trades)".
This Amendment is also designed to improve the drafting and to make it clear that where a trade is exercised in more than one territory—that may, for example, be in several territories abroad or may be a case of a company trading partly in the United Kingdom and partly in territories overseas—a trade is to be regarded as being so many separate trades, depending on whether it is at home or overseas. It corrects a drafting defect in the Clause because, without this Amendment, the position in relation to a trade carried on partly in the United Kingdom and partly overseas might have been open to doubt.

Mr. Peter Emery: I am somewhat concerned about what the Financial Secretary has said about this being mainly a drafting Amendment. I do not want to misrepresent the Financial Secretary, but it seemed to me that it goes much further than simply drafting. As I understood the Bill before, it was possible for this matter to be dealt with by companies being able, if necessary, to average between what was their tax position and their overspill country by country. This definitely spells out that that is impossible and that each country must be taken separately. If that is the case—it seems to me that it is—I should like to ask the Chancellor or the Financial Secretary two questions. First, why should overspill have to be taken country by country? Where an operation is being taken on a worldwide basis and the operation of the company is obviously based on worldwide operations, why, for this purpose, should there have to be a division country by country?
Secondly, if my suggestion is correct, I am informed that there would be certain definite difficulties for some companies in their operation. If indeed more difficulties would be created and if it would be much more simple for a company to operate in its worldwide position from this country, why make for what is a most complicated aspect of taxation by having sub-division? We should be very concerned about this matter. I should like to have replies to these questions before deciding what action my hon. Friend should take on the Amendment.

Mr. MacDermot: I emphasised the drafting aspect because I wanted to make it clear that it was not our intention to alter what we intended to be the sense of the original provision. The intention always was that "overseas source of trading income" should refer to the trading to the extent that it was carried on overseas. On the question why a particular source overseas should be treated independently and should not be averaged and treated all as one source, the representations we have received have been rather to the contrary sense of some which have apparently been made to the hon. Member for Reading (Mr. Peter Emery).
On the basis of the representations made to us in examining the problem, our view is that averaging would operate to the disadvantage of companies, the reason presumably being that there would be different reliefs available which must be related to what the level of tax is in different countries. With a given quantity of overseas income coming from a particular country, some will afford a greater relief than others. I am advised that averaging could, and indeed would, operate to the disadvantage of the company. It is for that reason that we propose to make perfectly clear what is the intention in the drafting.

Mr. Peter Emery: I thank the Financial Secretary for that answer. It clears up a point about which we on this side were not clear—that the Government wanted to do away with averaging. There is obviously a slight difference of view. I do not think it is necessary at this moment to ask the Committee to divide, but we shall have to study this matter a little more closely. I ask the Chancellor to look again at the representations he has

received, because there may well be advantages in averaging.
As regards the O.T.C. position, averaging there was normally thought to be an evasion. Therefore, I find it strange that the Financial Secretary should now suggest that averaging might work against the general advantage of most companies. Both sides of the Committee need to examine this point again. We on this side were unable to know exactly what was in the Government's mind. We are now much clearer. We will return to this point, if necessary, on Report.

Amendment agreed to.

7.45 p.m.

Sir T. Barlow: I beg to move Amendment No. 735, in page 106, line 42, to leave out "quarter" and to insert "tenth".
Certain companies can obtain relief in some territories if they hold 25 per cent. of the shareholding of the company overseas. The figure of 25 per cent. is very arbitrary and it may be a very large proportion of a company. In the United States in comparable circumstances 10 per cent. has been chosen as a fair figure. In view of the size of concerns operating nowadays and in view of the immense cost of developing mines or plantations abroad, 25 per cent. is a very large proportion. There is a great difference between a portfolio investment and a management type of investment. There can be little confusion between the two. In many cases 10 per cent., or possibly less, may have great managerial value. Those of us who have sat here during the last few days have been told time and time again of the managerial value of overseas assets, in that they help exports, banking, insurance, shipping, and all kinds of things. For that reason, I suggest that 25 per cent. is far too large a proportion. The Amendment suggests 10 per cent. instead.
The Amendment has the added advantage of allowing these reliefs in all overseas concerns, whether they are inside or outside the Commonwealth. This may be rather important. In these days, when there are possibilities of our joining the Common Market in years to come, it is very invidious if there is one law for the Commonwealth and another for the Common Market. The United States law in


similar circumstances make no distinction at all between countries in which companies have direct interests and other foreign countries. It is much better that we should be on the same basis.

Mr. MacDermot: I rise at this early stage only because I find that all my efforts to staunch the flow of generosity on the part of the Treasury are of no avail. It is better, therefore, that I should make clear what our position is from the outset. Hon. Members will no doubt have noticed that the Government have tabled an Amendment proposing, in effect, in relation to the Commonwealth only, what the hon. Gentleman proposes we should give world wide: namely, that the test of what constitutes a parent company for purposes of overspill relief should be a holding of one-tenth rather than of one-quarter.
On considering the matter further and having regard, in particular, to the considerations to which the hon. Gentleman referred, my right hon. Friend has come to the conclusion that it would be right to accept the Amendment, rather than to move his own.
I should explain briefly the reasons for the original decision and how my right hon. Friend has come to change his mind on this matter. The original view was—and I think that it will commend itself to the Committee as being reasonable—that it would be illogical if overspill relief were given on income as being from a trade investment where no relief for underlying tax was due for that income. It would have been difficult to tie legislation to future agreements yet to be made. Also, we were advised that the problem, to which I referred on an earlier occasion in our discussions, of companies with holdings of between 10 per cent. and 25 per cent., particularly mining companies where there was a number grouped together to form a consortium to control a joint subsidiary overseas, was of particular importance in relation to the Commonwealth. Therefore, it was for that reason that I indicated earlier that we were proposing to extend relief for underlying tax to 10 per cent. holding in companies in Commonwealth countries.
I made clear on that occasion that it had always been a principle not to grant unilateral relief to the Commonwealth

where we were not prepared to negotiate and offer a similar relief on a reciprocal basis to other countries outside the Commonwealth. Now we have come to a position where it, is clear that we are prepared to accept this test on a reciprocal basis for other countries for underlying tax, and the principle in logic for not extending it to this interim relief goes. In addition, we have now received further representations which demonstrate that this same problem of a consortium of companies controlling an overseas trading operation jointly is not confined to the Commonwealth but that there are substantial investments overseas amounting to more than 10 per cent. but less than 25 per cent. of the voting power of companies in countries with which we have at present agreements providing for unrestricted relief for underlying tax. In those circumstances my right hon. Friend feels that it would be right to accept the Amendment.

Mr. Peter Emery: In accepting this Amendment, do I understand that the hon. and learned Gentleman will not be moving the Government's own Amendment on this matter? The hon. and learned Gentleman did not say so and I think that it appears to the Committee that it is quite plain that in the Amendment which we are now discussing we are covering the whole position. We are grateful that the Government have seen the sense in the Amendment which was so admirably and moderately moved by my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow).
On these matters, when we are considering the position of Burma and South Africa where we have considerable investments and where I am sure we want to be as liberal as possible, and when we consider the position in the United States which must have a definite bearing on whatever may be in the Chancellor's mind, we on this side of the Committee are most grateful to the Government for accepting the Amendment.

Sir J. Barlow: May I add my thanks to the Financial Secretary and the Chancellor of the Exchequer in that one has represented the thoughts of the other. We are most grateful for the concession, which I am sure is very sound and will be appreciated.

Amendment agreed to.

Sir J. Barlow: I beg to move, Amendment No. 736, in page 106, line 46, at the end to add:
or
(c) the investment in the company resident in a territory outside the United Kingdom was of a value at 6th April 1965 in excess of£1,000,000 or, if acquired since that date cost more than 11,000,000".
This Amendment is almost consequential on the previous one. The Chancellor has wisely reduced the 25 per cent. requirement on these companies to 10 per cent., and the Financial Secretary has told us how many of these overseas development companies are financed in that a consortium of companies gets together here and each puts up 5 per cent., 10 per cent. or 15 per cent. and together they contribute perhaps 80 per cent. of the capital, and sometimes ordinary shares for the remainder are issued to the public. But the fact remains that some modern developments are so large that£1 million may be much less than 10 per cent. For some of these large developments£1 million, or 10 per cent., whichever is the less, should be the criterion for relief.
If, for example, there were a company of£100 million then 10 per cent. would be£10 million, whereas in a much smaller company£1 million might be a very substantial proportion and might attract overseas trade and exports. The Amendment, as I have said, is substantially consequential upon the first Amendment which the Government have been so wise to accept. I hope that they will do the same with this.

Mr. MacDermot: I have to tell the hon. Gentleman that the Treasury has once again got control of itself and is reverting to what the Committee tends to regard as its more usual attitude towards Amendments. There are weighty objections to accepting this Amendment compared with the last one. I appreciate that an investment of£1 million is substantial and significant. I do not want to be thought in any way to be trying to treat this matter lightly.
These are the objections. Firstly, it is very difficult to see, once the principle was accepted of making the test one of a given size of investment, where one could hold the line. If, as is now suggested, a figure of£1 million were

adopted I think that hon. Members with experience in these matters will realise that immediately pressures would start for the adoption of a lower figure. One can think of many figures of less than£1 million which would still represent a substantial sum of money. Exactly the same type of argument could be used in support of lower figures as the hon. Member so persuasively used in support of£1 million.

Sir J. Barlow: The figure of£1 million is not produced any more easily than 10 per cent. If the Government accept 10 per cent. and stick to it, it is equally good to accept£1 million and stick to it.

Mr. MacDermot: If the hon. Member will listen to my argument he will see that I have the answer to the point which he is making. The real answer to his point—this, I think, is the main objection in principle—is that it would give to a wealthy company a relief which was not available to a poor company. When one takes the percentage test, on the other hand, one applies the same test and the same principle in respect of all companies, large and small. A small company which had invested£1,000, to take another round figure, in an overseas company might have committed quite as large a proportion of its resources as the giant investing£1 million.
8.0 p.m.
I am sure that all hon. Members accept that it is of the utmost importance in these Revenue matters to make one's provisions conform to principles which are applicable to all, great and small, and which are defensible on principle. It would seem quite indefensible to allow to a large company simply because of its size a form of relief which was not available to a smaller company in similar circumstances. The smaller company may be the energetic and growing one that we hear so much about in our conversations and which deserves encouragement.
Moreover, there is no logic in adopting a size test for trading investments in relation to overspill and not applying it in relation to relief for underlying tax. I know that this suggestion has not so far been made; but we feel sure that, if we were to accept the Amendment in relation to this interim relief, we should have pressure later to extend it as a test for


entitlement to relief for underlying tax. That would mean writing into double taxation agreements, if the matter were carried to its logical conclusion, provisions for relief by reference to the size of investment in another country. To put it mildly, we think it unlikely that other countries would be ready to accept that such a provision was justified in principle. I am sorry to have to reject the hon. Gentleman's Amendment, but, for these reasons, which my right hon. Friend finds quite compelling, I must advise the Committee to resist it.

Mr. Stephen Hastings: I am very disappointed that the Financial Secretary has refused the Amendment after having accepted the previous one moved by my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow). The second follows from the first, as my hon. Friend explained. A sum of£1 million seems to me to represent, to some extent, a dividing line between, what can be regarded as trade investment and portfolio investment, in this context, because investment trusts generally are required to spread their investment and would not go above this figure, whatever the size. This is one point in favour of the figure of£1 million or thereabouts.
My hon. Friend is concerned particularly in these two Amendments with mining companies, not oil companies overseas. The oil companies have grown in a very different way. They are so big that they own their deposits outright. The mining companies, on the other hand—Rio Tinto Zinc, Consolidated Goldfields and Selection Trust, for instance—have grown up in a different way. There are two reasons for this: first, the immense capital cost involved,£50 million being by no means excessive; secondly, the very great risk involved, more so than in a strike of oil. For these reasons, as the Financial Secretary admits, if I understand him aright, the risk is spread very widely and holdings are comparatively small although the companies themselves may be of considerable size. This is an argument for accepting this Amendment just as it was an argument in favour of the previous one which the Chancellor accepted.
Even though holdings of£1 million in this context may be regarded as small, the benefits which these companies bring

to this country are considerable. First, through such holdings—we are arguing now about holdings of£1 million—they are in a position to place orders, and they do place very large orders, for machinery and plant in this country, and they employ British people on a fairly large scale through the influence they have as a result of investments of about this size. Second, and just as important, in times of shortage of raw materials—we have just been living through such a time when, for about two years, copper has been short—the control exercised through investment of this order ensures that industry in this country obtains the raw materials which it needs even though the risk of shortage may be great.
If the Amendment is not accepted and these companies start to slip on the London market—I know that this argument has been used before—and control begins to move from them to other than United Kingdom interests, there will be a real risk of these two large and distinct advantages to our economy being lost.
I think it most disappointing that the Financial Secretary is not prepared to accept the Amendment. The argument in favour of it is every bit as weighty as the argument which he accepted on Amendment No. 735, and I hope that my hon. Friend will advise the Committee to divide.

Mr. Peter Emery: The Financial Secretary seems to adopt a cyclical approach to our Amendments, sometimes blowing hot and sometimes blowing cold. Having just accepted one Amendment, he is now spoiling the generosity of which he has spoken.
I listened closely to the point which the hon. and learned Gentleman expounded about a large company, suggesting that, if the Amendment were accepted, it might put the larger company in a more favourable position than its smaller brethren which would have to meet the 10 per cent. requirement. I take that point, but I cannot accept that it is anything like as compelling as the hon. and learned Gentleman argued. My hon. Friend the Member for Mid-Bedfordshire (Mr. Hastings) underlined the real issue here, namely, the element of risk bearing.
Often, although it may not seem so much greater, some of the very large mining concession companies and other


types of large-scale investment overseas bear a risk which, in my view—this must be to some extent a subjective judgment—is considerably greater. It may be argued by the Financial Secretary that the bigger company can more readily afford this amount of risk bearing, but that was not the argument which he used, and it is not an argument which I should accept. It seems to me that this Amendment is tied very reasonably to the previous Amendment which the Government have accepted. The criterion of 10 per cent. or£1 million is perfectly reasonable.
I say to my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) that I think that we should like to look at this matter closely, perhaps not dividing the Committee on it now. We are not neglecting the generosity shown by the Government in accepting my hon. Friend's previous Amendment, but we should like to look at this one and consider whether it ought to be brought back to the House on Report. I shall be guided by my hon. Friend, but it seems to me that we might well leave it for the moment, consider it further, and return to it later, if necessary.

Sir J. Barlow: In view of what has been said on both sides, I shall be perfectly willing to leave it at that level.

Mr. MacDermot: I would make it clear, in view of what the hon. Member for Reading (Mr. Peter Emery) has said, that I am not giving any encouragement on behalf of my right hon. Friend to further consideration of the matter. Our view is quite clear for the reasons that I have stated. What hon. Members opposite may do is their own affair.

Amendment negatived.

Question proposed, That the Clause, as amended, stand part of the Bill.

Sir E. Boyle: I do not wish to detain the Committee for long, but I think we ought not to part with this important Clause without a few more words from the Opposition. I calculate that, taking together the ten hours on Clause 16 and the four hours spent on this Clause today, we have spent about14 hours on the Corporation Tax in its external application.

Mr. Callaghan: And a lot of money.

Sir E. Boyle: I think the right hon. Gentleman will agree that we have not devoted an excessive proportion of our total time on the Bill to an aspect which must have caused him more trouble and concern than most other parts.
I have four points to raise on this Clause. None of us on this side will wish to underrate the value of the relief which the Chancellor has produced and the value of some of the rewriting that he has done as the Bill has gone through the Committee stage, but I feel that in certain respects the Clause must remain basically somewhat unsatisfactory. The first example is this. In a situation in which relief is calculated by reference to a base year, however liberally and fairly one tries to interpret the concept of the base year—I pay tribute to what the Chancellor has done about it—that concept must always be unsatisfactory. After all, companies these days develop very fast, their scale of operations is very large and the international links between one large corporation and another are growing all the time.
Whenever I hear someone speak about a base year or read a Clause which refers to a base year, I am reminded of Mr. Harold MacMillan's remarks about looking at last year's Bradshaw. That is to say, inevitably the operation of Clause 79 must have some reference to last year's Bradshaw. One is bound to admit that, however fair one tries to make the provisions of the Clause, they are bound to be somewhat unsatisfactory for that reason alone.
Of all the aspects of the Clause that we have discussed, I confess that the one that bothers me the most is the prospect of a seven-year dividend freeze for a number of companies unless they are prepared to see their overspill relief substantially reduced. I do not want to go over this again at length. I entirely understand the Chancellor's difficulty as the Clause is drafted, that he is paying, as it were, a direct grant from public funds to ease the position of companies which would otherwise be in difficulties. The Chancellor feels—I understand his attitude—that any company which increases its dividends cannot hope to qualify.
On the other hand, that really points to a basic defect in the scheme of Corporation. Tax in this Bill with regard to overseas operations. Surely a seven-year dividend freeze must in practice be restrictive, limiting the operations of a considerable number of companies whose future is, I believe, of very great importance to this country. I would just make the point again—I think that all of us on this side realise the importance of great corporations in terms of responsibilities to the nation—that, whatever view we take about the right boundary between the private and the public sectors, the fact remains that the proper treatment of great corporations by the Government is a matter of crucial importance whether we are talking about a developing country or an industrial country like Britain.
8.15 p.m.
It seems to me that the Bill as it has come to us and the operation of this part of it must prove damaging to a considerable number of major corporations of really great importance to the nation. I hope that the Chancellor will always ear this point in mind and will be prepared to give further consideration to it. My own belief is that our Amendment to page 105, line 4, was the most important one. I confess that I felt disappointed that the Financial Secretary was not able le meet us on any of the aspects of it that we discussed.
This leads to my third point, which is that Clause 79 will undoubtedly have disparate effects on different companies. The example of Shell has already been quoted by my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd)—the difference in treatment under Clause 79, the difference in the consequences of the Clause for two of our most important oil companies. There are, of course, other companies which could have been quoted. The example of B.A.T. might well have been quoted. I am sure that the Chancellor will bear in mind the importance of justice appearing to be done in the case of all the major companies affected by the Bill.
There is one aspect of the Clause which we have not discussed during the debates. I refer to the position of new companies, new enterprises, trading abroad which have not, as it were, got a base year

from which to start. I hope that the Chancellor will bear in mind the position of these companies. It is very important that in any scheme under which the payment of public money is linked directly to certain controls, those controls should not operate in too conservative a way. Some concern has been expressed about the position of companies operating abroad at present which have not got a base year from which to start.
Those were the four points which I was concerned at this stage to make. I cannot feel that the arrangements in the Bill expressed in Clauses 60 and 79 can remain unaltered. It seems to me that this is one aspect of the new taxes in the Bill which is bound to prove unsatisfactory for the future. I will not say more than that now, except again to state that we are basically dissatisfied with the Chancellor's Corporation Tax proposals in their external incidence. It would obviously be inconsistent of us to vote against Clause 79 because, by its nature, it is a Clause which gives certain easements, but we ought not to pass from this part of the Bill without the Government being perfectly clear that we are dissatisfied with this whole section of the Bill. We feel even now that there are parts of the Clause on which the Chancellor could have gone rather further to meet us.

Mr. Callaghan: I have just two or three comments to make on what the right hon. Gentleman has said. It would not be right to let the Clause go without my saying this. He is quite right in saying that the Clause has cost a great deal of time. I interjected "and money" because the reliefs which are conceded in the Clause are of a very substantial character. In the first three years there is relief which runs to the tune of scores of millions of£s. This may well be right—I think it is—but it is a very gradual process, the Clause is worth a very great deal to the companies affected.
I believe that we need have no fear that the interests of the great commercial concerns of this country are ever likely to be neglected either by Conservative or by Labour Governments. Certainly, they have been well represented here during the discussions that we have had. I say that in no particular spirit except one of indicating that people ensure that their views are heard. I have met many


chairmen of companies and many representatives of groups of companies and single companies which are operating overseas, and I have, I hope, been unsparing of my time in this way to understand the problem. That is why I was ready to introduce a large number of Amendments, even though this meant practically rewriting the Clause.
The right hon. Member for Birmingham, Handsworth (Sir E. Boyle) said that the calculation by way of the base year is unsatisfactory. I agree with him. I think that any base year one selects is bound to be unsatisfactory of its nature. But the alternative would be very unpalatable and one that I would not advance. It would be that we should move over to the new system at once and then we would not have the difficulties which arise from using the base year. However, I do not think that course would be right and I do not believe that anyone else does. Of all the courses available if we are to give relief of this sort—and the Committee agree that it is right—the choice of the base year we have selected is really as fair—I would almost say "generous"—as anyone could hope for.
In relation to the new companies, I repeat what my hon. and learned Friend the Financial Secretary said. I have looked into this problem without really being able to get to grips with it. If there are practical examples of what the right hon. Member for Handsworth, spoke about I should be glad to look into them. I can see the theoretical difficulties which arise and I should like to know the practical consequence. If there are any, I will gladly look at them.
Then there is the question of the dividend freeze. Here is involved a choice between being fair to the company and being fair to the nation. I am, after all—although some might not think so after my concessions—the guardian of the nation's finances and I must consider carefully when I am helping shareholders—which is the purpose of the exercise—that I do not give away too much of the taxpayers' money in this regard. I have to try to hold the balance.
Of course, I would like to give away more, in one sense, to the shareholders, but I believe that I have not struck an unfair balance, given the Corporation Tax and its effects. The right hon. Gentleman

said that he does not like the effects of the tax on overseas investment. That is a difference of principle between us and will no doubt remain so. As to how these provisions will be altered, that is a matter for time to show. I have shown that I am not stiffnecked in this in any way, but it is now for those who take the other view to prove their case. It is not my purpose to hinder or harm overseas investment. I want to see as fair a balance as possible between home and overseas investment. I am supported in this view, I believe, by the fact that similar provisions apply to other countries which have been successful. I do not want to repeat the arguments. We shall not convince each other, I suppose, but we shall see the results of the inquiries now taking place.
Of course, this provision will have a disparate effect on different companies. I think this is unavoidable when one makes tax changes of almost any sort. I could enumerate a dozen tax changes that could be proposed in relation to Income Tax and Profits Tax, all of which would have disparate effects on the different companies concerned. This is bound to be the result of any tax change, and I do not think this Committee could say that it must be restrained from making tax changes because of differing effects on differing companies.
The right hon. Gentleman put his views moderately. My view is, after the conclusion of 14 hours of debate on this aspect, that overseas investment will continue on a very substantial scale. I have no doubt of that. I am reinforced in that by the views of the chairmen of companies who have been in touch with me. Their fears have been of the effect on Stock Market quotations if they had to reduce dividends. The interesting thing is that nearly all of them have told me that they intend to continue with overseas investment, and that is the basis of the Bill. The shareholders will suffer, they say, but they intend to go ahead. I have quoted examples before.
I think that I am right in saying that what is happening is two-fold. First, companies have already made up their minds, broadly speaking, to go ahead with overseas investment, but they will be much more selective in future than in the past. A number of chairmen have said that they want to see the result of


these provisions and see whether their decisions were marginally right or whether they will be marginally right in future. We must remember that we shall face a balance of payments problem for a long time, although we shall get over it.
Secondly, for a long period of years we are protecting shareholders from the consequences of our change of attitude towards overseas investment, and I believe that it will be found to be a fair balance. I do not say that it will not be altered in years to come. However, basically, I believe that the idea will stand for many years, whatever marginal alterations are made. I would be the last to resist such alterations if they seem sensible and make for the health of overseas investment and companies.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 80.—(TRANSITIONAL RELIEF FOR COMPANIES PAYING DIVIDENDS OUT OF PRE-1966–67 PROFITS.)

The Temporary Chairman: Before calling upon the hon. Member for Worthing (Mr. Higgins) to move his Amendment No. 623, I should tell the Committee that it would be convenient to discuss at the same time Amendment No. 570, in page 107, leave out line 36 and insert:
in any three consecutive years selected by the company commencing 1956–57 and ending 1965–66 or, in the case of a company whose business consists wholly or mainly in the ownership or operation of ships, six per cent. of the capital employed by that company in the financial year 1965, if that amount be greater".
and Amendment No. 569, in page 109, line 27, at end insert:
(7) For the purposes of this section the capital employed by a company shall be arrived at by taking the amount by which the value of the company's assets, computed in accordance with the provisions of paragraphs 2 to 9 of the Eighth Schedule to the Finance Act 1952, exceeds the amount of its liabilities so computed and adding the capital value of the company's investments computed by multiplying by twenty the company's franked investment income for the relevant financial year and deducting the cost of such investments.
both of them standing in the name of the hon. Member for Dorset, West (Mr. Wingfield Digby) and the names of some of his hon. Friends.

Mr. Terence L. Higgins: I beg to move Amendment No. 623, in page 107, line 32, after "that", to insert:
(except in the case of a company whose business consists wholly or mainly in the ownership or operation of ships)".
We turn now to the Clause concerned with transitional relief for companies paying dividends after pre-1966–67 profits. The two Amendments we are discussing with my Amendment are rather narrower in scope. The effect of my Amendment is to remove a limit on the notional surplus in the case of shipping companies. My reason for moving the Amendment is that the case of shipping companies in this respect is exceptional, because in the three years which are taken for the purpose of the Clause their profits have been exceptionally low.
For the purpose of my argument, it will be convenient if I go in some detail, although not at great length, into the reasons why profits of shipping companies have been low in recent years, for this supports my case.
One can trace the situation in the shipping industry to a series of radical changes in the structure of the industry since the war. The first is with regard to the capital market for shipping. Before the war, capital for shipping was largely given to particular owners who were working on a day-to-day basis and, taking booms and slumps of the pre-war period, for a long time found they could raise sufficient capital to enable the British shipping industry to maintain a preeminent position in world trade. This was the basis on which capital was normally raised.
In the post-war years there was a radical change in the situation when it became possible for financiers, who were not themselves particularly involved in shipping and who did not themselves have any particular expertise, to raise money on the basis of long-term charter to some third party and thus to finance the creation of ships and the generation of large companies. In the post-war era this had a particular effect in the New York market and there was a great deal of increase in the tonnage of ships in the United States.
8.30 p.m.
I shall deal with the effect of that later, but I want now to deal with the


second development which has affected the market for shipping, that of flag discrimination. This may be briefly described as attempts by particular countries to give preference to cargoes being carried in ships sailing under their flags. This has led to a change in the structure of the market to the detriment of British shipping.
The third influence or development was so-called flags of convenience whereby, because of the international nature of their trade, owners found it profitable to go to countries, particularly Panamanian countries, which had lower tax rates than those obtaining in this country. The final development was the radical change in the extent to which governments overseas were prepared to subsidise their own merchant marines in the liner or tramp trade.
These four developments led to what in technical jargon might be called an increase in the elasticity of supply. That is to say, whenever there tended to be a boom, there was much more of a tendency to build ships than there would have been in the pre-war situation when the developments which I have mentioned had not occurred.
The net effect of the boom in world trade immediately after the war, the boom at the time of Korea and the boom at the time of Suez has been an increase in world trade with a sudden demand for tonnage in crisis situations so as to result in a series of building booms of ever-increasing size. After about 1957, we found ourselves in a situation in which an enormous amount of world tonnage had been built, far more than was needed for the normal working of the market, and as a result supply was greater than the demand for the tonnage and freight rates were depressed to unprecedented low levels and the degree of profit in the industry was correspondingly depressed.
The point which now needs to be made is that we have a situation in which the shipping market is gradually emerging from that position. We are gradually getting a state of equilibrium and people are beginning ever more rapidly to build again. The crucial point of the Amendment is that at this time above all others we should do nothing to destroy the basis on which British shipowners can raise money and the basis on which they can build. If we do,

nothing is more certain than that our share of the world shipping market, which produces large quantities of export earnings, will be less than it would otherwise be.
If we do not amend the Bill as I suggest, at this crucial moment the basis on which British lines, owners and builders operate will be affected. Confidence will be shaken, because, reverting to the first point I made, people have been tending to build in order to let out ships on a long-term charter basis, and in order to do that they have to be able to offer a sufficient rate of return to those who might invest in their projects in order to make them competitive with alternative investment projects. They have been able to do that in recent years only because of the favourable investment allowances which previous Governments have introduced. Not to amend the Clause as suggested would make it more difficult for recent companies in particular to offer the favourable rates of return which they would otherwise wish to offer.
It is very important to stress one final consideration. I am sure that the people in the shipping industry would be much happier if we could get away from the developments which I have mentioned. However, given the realities of the situation and given this country's vital interest in its merchant marine in order to maintain its export earnings and given the contribution of those export earnings in terms of invisible exports to the country's balance of payments, it is very important to accept the Amendment. As I said, it completely removes the limit for shipping companies.
My hon. Friends, in proposing the Amendments which have been linked with this Amendment, will no doubt put an equally strong case and argue that perhaps the Chief Secretary may feel disposed to impose some limit. I hope that he will not do this. I hope that he will accept this Amendment which will remove the limit completely. In order to give us a basis on which to appraise the answer he gives us perhaps he can indicate how much the wide Amendment which I am now suggesting would be likely to cost the Exchequer as against the situation which would exist if the narrower Amendment were accepted. I think that we should have some idea so as to be able to appraise the situation as far as export earners are


concerned in relation to the cost to the Exchequer.
The Chancellor said that he has to strike a balance between the interests of the economy as a whole, and the taxpayer, and the interests of particular firms. I would suggest that in this particular instance it is fairly clear that we should be in a position, if we accept this Amendment, to ensure that the best interests of the firms concerned and the economy as a whole are served. For this reason, I hope that the Chancellor will be able to accept the Amendment.

Mr. Julian Ridsdale: I rise to support the Amendment moved by my hon. Friend the Member for Worthing (Mr. Higgins). He has great knowledge of the shipping industry and it is with that knowledge and authority that he speaks to the Committee. The shipping companies have been through a difficult time within the last few years and are undoubtedly, as my hon. Friend said, large earners of foreign exchange. It is not unreasonable to help them over the difficult time that they have been through. This wide Amendment will enable them to have three more years to recover the tax paid on the past profits and be a partial compensation for the current losses which they have suffered. Such a privilege does not seem unreasonable in view of the substantial capacity of the shipping industry as earners of foreign exchange. It would be helping them in the very competitive circumstances with which they are to be faced. For those reasons I support the Amendment and hope the Chancellor will give way to this Amendment and at the same time say how much it will cost as opposed to the shorter Amendment.

Mr. Stanley R. McMaster: I should like to say a few words about Amendment No. 570. This is an alternative to the Amendment which the hon. Member for Worthing (Mr. Higgins) has just been discussing. If the Chief Secretary does not see fit to accept the Amendment which has been so forcefully proposed by my hon. Friend the Member for Worthing I hope he will, as a lesser alternative, accept one of the other Amendments which have been selected. I feel that the greater takes in the lesser and I am sure my other hon. Friends who have put down these two additional Amendments would be

more pleased to see the Chief Secretary accept the first Amendment rather than our own less sweeping Amendments.
The object of these Amendments, particularly of Amendment No. 570, is to translate into reality for the shipping industry the benefits which it is intended by the Bill to confer on companies which have failed to achieve during the three years up to 31st March, 1969, a level of profits which would result in a reasonable balance between Corporation Tax at 40 per cent., coupled with a distribution charge of 41·25 per cent., and the taxation liability which they suffer under the present system.
Under Amendment No. 570, the overriding limit to three years' surplus is the Income Tax ultimately borne by the company in the years 1963–64 to 1965–66. Profits in the shipping industry have been falling. This overriding limit to these three years surplus virtually negatives the intended benefits of Clause 80. During the years in question, owing to the depression to which my hon. Friend the Member for Worthing referred, it is unlikely that shipping companies will pay any Income Tax. This point has been discussed on previous Amendments, and I think that it is accepted by the Treasury Bench.
The limitation bears particularly heavily on the progressive company which has continued to build ships in spite of the depression in the industry. In this case, the investment allowance of 40 per cent. and the annual allowance of 15 per cent. make it virtually certain that such a company will not pay tax during 1963–64 to 1965–66.
Amendment No. 570 seeks to provide as alternative limitations—either the tax ultimately borne during any three consecutive years from 1956–57 to 1965–66, or in the case of a shipping company, 6 per cent. of the capital employed in the financial year 1965. We believe that it is not unreasonable for this purpose to accept a standard earning of 5 per cent. of the capital employed. The way in which this figure has been arrived at is this: With tax at an average of 8s. in the£ for the three years 1963–64 to 1965–66, the tax liability becomes 2 per cent., and as the provisional arrangements cover the three years 1966–67 to 1968–69, the 2 per cent. is multiplied by three. It


is felt by the shipping industry—and Amendment No. 570 has the support of the Chamber of Shipping—that the proposal suggested in the Amendment is a reasonable alternative to Clause 80 for the shipping industry.
I hope that right hon. and hon. Members opposite have been able to follow this complex argument. I have been impressed by the consideration which has been given to the shipping industry and to the case which we have been putting forward, and by the earlier remarks of the Chief Secretary and other occupants of the Treasury Bench to the effect that they intend to assist the shipping industry. For this reason, I trust that they will look favourably on these Amendments.

8.45 p.m.

Mr. Ian Lloyd: I support briefly all that has been said by my hon. Friends in calling on the Government to show more sympathy to the shipping industry by taking particular note of the Amendments which have been tabled.
May I refer particularly to Amendment No. 569, which is consequential on Amendment No. 570. It refers again to the question of the definition of "capital employed", which is exactly the same as that used in Amendment No. 418 on Clause 78 which was discussed last night. I should like to say a few more words about this, because the Chief Secretary rather implied that one of the Government's difficulties in accepting this definition was the complexity of any process which might be used either by the Inland Revenue or by industry to define "capital employed".
The situation can be exaggerated, for the following simple reasons. Shortly after the war, British industry sent a large number of teams to the United States under the auspices of the Anglo-American Council on Productivity. They produced a series of remarkable and remarkably valuable reports. One thing which was common to practically all those reports—and this was very much endorsed by subsequent reports by the British Productivity Council, which succeeded the original idea of the late Sir Stafford Cripps—was that invariably in American industry the closest attention was paid to the question of resources

employed and that, generally speaking, industries or groups of firms would set up organisations.
The example which I should like to quote to the Chief Secretary is that of the printing industry of America, P.I.A. The whole purpose was to make the closest possible comparisons of the efficiency with which resources were used in different firms within an industry.

The Chief Secretary to the Treasury (Mr. John Diamond): I am more than willing to listen to any arguments that the hon. Gentleman cares to put to me, but if he is concerned to persuade me that the problem of defining capital employed is for these purposes no problem at all, he need not exert himself, because I accept that for these purposes capital employed can be as simple as one wishes to make it.

Mr. Lloyd: I am obliged to the right hon. Gentleman for that indication, as I see it, of, to some extent, his acceptance of our arguments of last night. The fact that the seeds sown by those reports seem to have taken root in this country is shown by the efforts of the Interfirm Comparison of the British Institute of Management, which is doing precisely the same sort of thing for British firms. This, presumably, is something which we want to encourage in every way.
Anything that the Government can do in their general fiscal legislation to encourage directors of companies to examine the resources which they employ and to make comparisons within industries and inside large groups of firms undertaking similar activities should be encouraged by all possible means. This links closely with the recommendations made by the National Economic Development Council concerning the neglected investment allowances. If we want to encourage directors to pay more attention to investment allowances, not only in shipping but throughout industry, surely we can assist in this and provide an incentive by encouraging them to examine the capital which is employed, both for fiscal purposes and for the purpose of their own industrial operations.

Mr. Diamond: The most straightforward way of replying to the Amendments


is to remind the Committee of the purpose of the Clause and, secondly, to refresh hon. Members' memories with regard to the shipping industry in particular and its history of profits and dividends. The purpose of the Clause is to deal with a certain problem that arises from the commencement of Corporation Tax. Under Corporation Tax, the system will be, as opposed to the present system, that when a company pays a dividend, it accounts to the Inland Revenue for the tax.
The present system is not that. Under the present system we get circumstances in which dividends are paid to a shareholder who receives in all good faith a certificate from the secretary to the company saying tax has been deducted. The shareholder, in appropriate circumstances, goes along to the Inspector of Taxes, produces the certificate, and says, "See, I have suffered some tax and should not have suffered it. I want it back." The inspector of taxes repays it, but, lo and behold, tax has never been paid in the first place, because the company, which allegedly deducted tax from the dividend paid to the shareholder, itself never paid any tax over to the Inland Revenue. That is a situation we know well: we in this Committee in particular know it well because it has been drawn to our attention by a Select Committee of the House; and the whole problem was commented on adversely by them, the Public Accounts Committee.
That is the background against which a special provision is made in this Clause. This Clause is a helpful Clause, which wants to deal with the situation where a company is about to declare a dividend in the now period, under the new régime, the Corporation Tax system. It has, of course, therefore, to account for the tax, but, on looking at the facts, it sees that the dividend could not possibly have been declared out of the profits of the then current period because the profits were not sufficient. Therefore, it must have been paid out of profits previously earned, and, of course, if those profits had been earned in a period prior to the Corporation Tax period those profits would have borne Income Tax.
Therefore, it is right to say, within limits, where that is the case, that the tax deducted from dividends paid in the

Corporation Tax period should be not necessarily handed over in full to the Inland Revenue but there should be taken into account the tax which had already been paid on the body of profits out of which, in effect, the dividend was being declared. Therefore, one has under the Clause a system under which to work out whether for the period of three years after Corporation Tax commences there could possibly have been enough profits to finance the dividend paid, and if there were not enough profits the dividend must have come out of previously earned profits. Therefore, one takes that into account.
But it is not always right to say in the present Income Tax and Profits Tax period that dividends have been paid out of funds which have borne Income Tax. As I have explained, in some cases, because of investment allowances and the like, Income Tax could not in fact have been borne, it is therefore necessary to protect the Revenue by this further test or check of saying, "Yes, we will certainly recognise that the dividends paid in the future must have come out of profits earned in the past, but one cannot jump to the conclusion that those profits bore tax." One has to see that in fact they did bear tax. Therefore, there is a further test. The relief which it is desired to give, the relief which it is equitable to give, can only be given if in fact tax has been paid.
So far as the shipping industry is concerned, in a large number of cases tax was in fact not paid. One has to look at it quite fairly. Therefore, what is in effect being proposed on behalf of the shipping industry by these Amendments is that this restriction would effectively put a bar to the payment of dividends in the future, coupled, as they have to be coupled, by the payment of tax at the same time—or might he a limitation if not a complete bar. What is being proposed in the Amendment is that we should remove this test and therefore get back for the future period to the situation which the Public Accounts Committee criticised roundly, namely, the situation in which the individual shareholder in a shipping company could receive dividends and claim back, in appropriate cases, tax alleged to have


been suffered although, in fact, no tax was suffered at all.
I am bound to tell the Committee, therefore, that the Chancellor accepts the view of the all-party Public Accounts Committee, and is not willing, under any circumstances, to permit a situation under which we continue what was rather politely called an anomaly, but what was in effect taking tax that had never paid—one taxpayer taking tax that had been paid by another taxpayer; reclaiming tax that had been paid by another taxpayer; robbing Peter to pay Paul. That is a situation which cannot continue, and, therefore, to the extent that these Amendments rely on that situation, they are unacceptable.
It is, unfortunately, the fact that they do reply on that situation; and the reason why I wanted to save the hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) the trouble of demonstrating his point about capital employed is that, with the greatest deference, it is, I shall not say irrelevant, but an illusory concept for this purpose. What one is concerned with is not the amount of dividend which capital might earn. What one is concerned with in this check is a simple test: has tax been paid or not? If it has been paid, it is right that that should be set-off against tax to be paid, but if tax has not been paid, it is wholly wrong to set off an imaginary figure, X per cent. of the capital employed, against a tax bill.
Therefore, I am bound to say that these Amendments are completely unacceptable because of that essential defect in them, namely, that they continue a procedure which has been anomalous in the past, which arose out of our present system of taxation, and which has been roundly and wholly condemned by the P.A.C.
Having said that, I repeat what I have said on many other occasions on behalf of my right hon. Friend. The Government are most anxious that there should be a prosperous shipping industry. My right hon. Friend is anxious to help it, and to see in what ways it can be helped, but the way to help it is not to drive a coach and horses through Corporation Tax, to continue a procedure which has been roundly condemned by a Select Committee of the House. I hope, there-

fore, that I have made it clear why, with the greatest good will towards the shipping industry, these Amendments are not acceptable at all.

Mr. Higgins: I shall not detain the Committee for more than a few moments, but I think that it is, to say the least, a slight exaggeration for the Chief Secretary in his peroration to say that these Amendments drive a coach and horses through Corporation Tax. We are not proposing that the change should continue indefinitely. What we are suggesting is that, during the period of the transitional arrangements with which the Clause is concerned, the original basis on which people raised capital should be continued, particularly at this crucial moment when the shipping industry is beginning to pick up again.
I cannot help feeling that the whole argument that at all costs we must stop people from receiving a tax rebate if tax has not been paid is a narrow way of looking at it. The function of taxation policy is surely to implement Government policy, not the other way round, and it appears that the right hon. Gentleman, in his obsession with this whole idea, which comes up time and again in his speeches and in those of the Chancellor of the Exchequer, is overlooking the broader picture, and once again they are on a much narrower front than is normally the case, with the Government destroying business confidence at the precise moment when they should be trying to restore it. I therefore suggest that it is not an adequate answer merely to say, "We will do everything we can. We want a prosperous shipping industry", while, at the same time, doing nothing practicable to ensure it.
Will he tell us what would be the cost of this Amendment to the Exchequer? If we knew that we could appraise our proposals, and if we were convinced that the cost would be too great in terms of our national economy we would accept the fact. If we were told what the cost would be we would have some basis for appraising the quantitative value of the right hon. Gentleman's argument. We should also be able to judge the matter in relation to subsidies for export-earning industries or import-saving industries, such as the coal industry. The right


hon. Gentleman should give us this set of figures. It would show that he has given some thought to the matter.

9.0 p.m.

Mr. Edward M. Taylor: The Chief Secretary's arguments were relevant to only one of the propositions put forward in the Amendments which are being considered with this one. The first of those Amendments concerns the question of capital employed and the other establishes a 10-year basis—three consecutive years in the previous 10-year period. This will involve tax actually paid. The Chief Secretary said that he was not prepared to go beyond the principle that tax is not recoverable unless it has been paid. His argument is not directly relevant to all the Amendments, and in those circumstances I hope that he will agree to reconsider the question.
I also draw attention to the fact that the Clause refers to "transitional relief". I emphasise the word "relief". The right hon. Gentleman has made it clear that he is most anxious to help the shipping industry. On more than one occasion he has said that he would go out of his way to help it. All that we are trying to do is to establish a position in which the industry can obtain the same relief as that which is afforded to industry generally. What we are seeking is not special relief but simply the acceptance of an Amendment which will enable the shipping industry to benefit from the relief provided for in the Clause.

Mr. William Clark: It is difficult to foresee snags when one recasts the whole tax system. In my opinion, the right hon. Gentleman has not fully answered my hon. Friend's excellent résumé of our shipping problems. My hon. Friend pointed out with great brevity and clarity the situation that had arisen as a result of flag discrimination and subsidies by our competitors, and then referred to the importance of this country as a maritime nation. I am sure that the Chief Secretary agrees that the shipping industry generally has contributed a great deal to our invisible ex ports.
The Clause deals with the question of transitional relief. The Chief Secretary pays lip-service to the importance of the shipping industry and agrees that it should

be helped, and says that the Government will do all they can and then, before sitting down, he informs the Committee that in this case nothing is to be done. The Chief Secretary has not answered the point raised by my hon. Friend the Member for Belfast, East (Mr. McMaster). His Amendment, which we are discussing with the Amendment that has been moved, extends the three-year period to 10 years. The shipping industry has been in the doldrums in the last few years but has recently been gearing itself up, and looks as if it is going to improve its position, if the trend that we have seen in the past few months is continued.
The Chief Secretary ignored altogether Amendment No. 570. He gave no reason why it was wrong to take the 10-year period instead of the three-year period. As my hon. Friend the Member for Worthing (Mr. Higgins) said, it is tremendously important to the shipping industry because, if the shipping industry is to grow—bearing in mind the fact that many of our competitors give huge subsidies to shipping in one way or another—obviously, it has to be a good investment, and competition between investments in this country is extremely important. Let us accept the fact that this Amendment—whether we take the wide one or the narrow one, No. 570—will cost the Exchequer money. The Chief Secretary has been asked twice by my hon. Friend the Member for Worthing whether he will declare the cost of the wide Amendment. I do not know whether the Chief Secretary would now like to say what that cost would be.

Mr. Diamond: I would do so at any time convenient to the Committee. The hon. Gentleman showed signs of wishing to address the Committee and I was most anxious to listen to him. I did not want to delay that pleasurable occasion. I cannot—nor can any one—give any idea of the cost of either of the Amendments, because it depends on decisions of boards of directors, which have not yet been made, as to what dividends they will declare.

Mr. Clark: There it is. We are arguing about something which the Chancellor or the Chief Secretary says will lead to a loophole in our tax law or will continue one. It will, presumably, cost the taxpayer some money. When he is


asked how much money, the Chief Secretary is unable to say because, he says, somebody else has to make the decision. This is a false argument. One cannot say that it will cost the Exchequer a certain amount of money and then not say how much money it will cost.
In connection with Amendment No. 570, the Chief Secretary went on to talk about capital employed. I do not want to develop the argument on capital employed, because we had a splendid debate about the subject early this morning. Last night, the Chief Secretary, questioned about capital employed, said that this was full of complexities, that he wanted to protect the directors of companies from the complexities of working out the capital employed in their firms. A few moments ago, and I wrote his words down carefully, in answer to my hon. Friend the Member for Worthing, he said about capital employed, "Of course, this is simple to work out". How was it very complex last night and yet so simple this evening?

Mr. Diamond: The hon. Gentleman did not write down my words very carefully. I knew exactly what he would say when I got up and I was careful to use the phrase, "for these purposes", meaning—but not saying so, because it might have been a little discourteous—that, as it was totally irrelevant to the Amendment, I was prepared to accept that argument for the purposes of this Amendment. There was no need to prove that it was simple. I was prepared to accept it.

Mr. Clark: There it is. The more I listen to Treasury Ministers, the more confused I become. I do not think that I am alone in that. I think that some of my hon. Friends are more confused after listening to a speech from the other side than before they hear it. This is one of the tricky things about the whole Bill. One reads a Clause, as one has read Clause 80, and reads the Amendments and thinks that one understands them. Up till the moment the Government explain them, one does understand them. It is at that moment that confusion sets in, not only on these benches, but, even more, on the benches opposite.
I think that my hon. Friend the Member for Worthing would accept that his

Amendment, No. 623, is extremely wide. No. 570 and the other Amendment, which is consequential upon it, are extremely narrow. I think that my hon. Friend will agree that the Chief Secretary has given a disappointing reply—a sort of "brush-off" reply—with no facts to substantiate his accusation that shipping companies in this country are allowing their shareholders to claim repayment of tax which has never been paid. There are many shipping and other companies which have paid tax for which shareholders are entitled to a repayment.
It was wrong of the Chief Secretary to suggest that shipping companies come under the umbrella of the Public Accounts Committee's criticism of repayment of tax being made without the tax having been paid originally. Amendment No. 623 is extremely wide. No one would say that the Chief Secretary's answer was anything but disappointing, but we will study it in HANSARD tomorrow, if we are not too tired, and we will then return to it on Report.

Mr. Higgins: The Chief Secretary said that he cannot give any figures because it would depend on what dividends the companies concerned paid. Would he agree that the upper limit of those dividends over a period is set by the forestalling provisions? Could he give some indication of what the maximum cost would be in those circumstances?

Mr. Diamond: I would not agree with the first proposition, and therefore the second one does not arise.

Mr. Ian Lloyd: The Chief Secretary seems to have hinged his case on the anomaly which has arisen from the Government's decision some years ago to give general assistance to the shipping and shipbuilding industries. This involved a massive subvention by way of investment allowances, applied originally to the shipowners and, by other means, applied directly to the shipbuilding industry, but principally by the first means. This policy has undoubtedly achieved its effect.
One of the results has been the anomaly referred to by the Public Accounts Committee. The Chief Secretary himself declared this to be so. He said that this position had been criticised by the Public Accounts Committee and that therefore the Government could not allow it to continue. I recollect that when


the Public Accounts Committee made these recommendations its conclusions were by no means uncritically accepted in the general financial Press. Although I do not recall the arguments deployed at that time, the Chief Secretary might refer to some of those before he makes a sweeping condemnation of a major scheme simply because of the anomaly.
What is at stake here is more fundamental. The Government desire to help this industry. They do so by a major scheme applied, in the first instance, through the shipowners, broadening out to the whole British shipbuilding industry. We need not discuss now the parlous conditions through which the industry has passed and through which to some extent it may still be passing.
Private capital must be attracted to the ship owning and shipbuilding industries. If these industries do not achieve a situation in which private capital flows to them, they will have failed and ultimately they may have to turn increasingly and continually to State subsidy for their survival. If any measure or device employed by the State is to succeed, it must attract private capital. It has succeeded in doing so in a very special set of circumstances and conditions, in that investors have been prepared to invest in ship owning particularly, in a series of rather specialised types of bulk carrying operations, of which the methane tanker is an outstanding example, but by no means the only one. Investors have done this knowing that with the existing tax structure a certain rate of return on capital not generally achievable in shipping under present conditions will be achievable, provided that these tax arrangements are not fundamentally changed. If they are fundamentally changed, whatever the anomaly may be and what ever the cost of the anomaly may be, it will be a breach of faith on the part of the Government in those who have followed this lead.
What would the cost of the anomaly be if the general level of dividends paid by the whole of the shipping industry was the same as that over the average of the last three years, because it is most improbable that this average level will be exceeded in the next year?

9.15 p.m.

Mr. William Clark: Will the Chief Secretary answer some of the questions? One of the questions which I asked, reinforced by my hon. Friend, concerned the fact that under the Clause the transitional period is for three years. In Amendment No. 570 my hon. Friends are suggesting 10 years. There is no question that anybody wants to set off tax which has not been paid, but provided that the tax has been paid, why cannot the right hon. Gentleman accept the fact that instead of taking three years of taxed profits, if he really wants to help the shipping industry, this sum should be taken out of 10 years of taxed profits? Why cannot he make it three years out of the last 10 years rather than the last three years?

Mr. Diamond: I did not deal with that point in so many words. I dealt with it in principle but I repeat the argument which the hon. Member has now admitted. I am grateful to him because he has said that there is no suggestion of a desire to help companies by reference to taxed profits where the profits have not in fact borne the tax but are alleged or deemed to have done so. The period of 10 years was provided for because 10 years ago was the peak period of the shipping industry when profits were made and tax was paid but that tax in most cases has been long repaid and it has been used up. What is being said in the Amendment is that companies—and they are almost exclusively shipping companies—are seeking a method of getting relief without subjecting themselves to the test to which every other company is subjected, namely that the profits against which the measurement has been made are profits which have borne tax. In this case they have not borne tax.
I repeat what I have said previously. The investment allowances are not helping the shipping industry to the extent to which the hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) suggested. They are merely accumulating. A sum of£150 million of investment allowances, by the shipping companies' own evidence, has accumulated and is not yet used. This is not a way of helping the shipping industry but, as I have said on a previous occasion, a method of


giving credit notes whereby shipping companies can paper their offices. We want to help shipping companies in a real and not a fanciful way.

Mr. Simon Wingfield Digby: The Chief Secretary makes great play of this sum of£150 million but he is not being quite fair—

Mr. Diamond: May I make one point perfectly clear? There is no intention of discourtesy on my part but, having responded repeatedly to requests for answers, if every time I get up further hon. Members get up and address questions to me it will be understood that at a certain point of time I will have to come to the conclusion that I have said all that I can usefully say although I will listen with great care and patience to what every hon. Member says.

Mr. Wingfield Digby: The right hon. Gentleman makes great play of the£150 million. It is not evenly spread throughout the industry. When it is borne in mind that the total cost of replacing our merchant fleet is£3,600 million, a sum of£150 million is not such a great figure. The right hon. Gentleman says that he is anxious to help the shipping industry but he always finds some reason for rejecting Amendments and thereby does not appear to be really anxious to help. He has now used this specious argument about unused investment allowances.

Mr. Anthony Barber: I agree with the Chief Secretary that the time has come to bring this debate to a conclusion. Whether we shall divide the Committee on the first Amendment as being, so to speak, symbolic of the proposals considered generally in the debate will depend on the answer to a simple question which I now put to the right hon. Gentleman, a question which has not been put to him before.
If we were to put down an Amendment on Report to propose relief in respect of three consecutive years selected by the company in the previous 10 years but couched in terms which would ensure that the relief was in respect only of profits which had actually borne tax, is there any chance at all that the Government would at least consider it, assuming that it were selected?
If there is any chance at all that the Government will seriously consider such an Amendment, we shall not divide the Committee. On the other hand, if we receive no such assurance on this proposal which, on the face of it, is at least worthy of careful consideration, we shall divide the Committee.

Mr. Diamond: The right hon. Gentleman has asked me something of a hypothetical question, but I shall deal with it as candidly as I can. I have explained the problem in relation to the 10-year spread which concerns the Government. It is not that there was never a period during these 10 years in which tax was not paid. It is that there is no certainty that the tax so paid has not been repaid in this period prior to the commencement of Corporation Tax. The right hon. Gentleman did not include any words in his, as he said, roughly explained proposed Amendment for Report which would refer to that point. Therefore, I can say straight away what the Government's answer would be to an Amendment on those lines.
In general terms, of course, the Government are always happy to consider any Amendment put down on Report. But I emphasise again that the way to help the shipping industry is not to provide a short-term relief of the kind which has been discussed, which would single out the shipping industry from all others. It is particularly the shipping industry which has paid dividends out of investment allowances, in effect, and has not, therefore, accounted to the Revenue for the tax. We are not prepared to accept an Amendment which would single out the shipping industry in that way, and which would drive a coach and horses through the Corporation Tax by setting up a system under which dividends would be paid and the tax not handed over to the Inland Revenue.

Mr. Barber: I think that I must, in the interests of time, advise my hon. Friends to hold their horses on this Amendment. We shall see whether we have any better satisfaction on later Amendments to the Clause.

The Chairman: In view of what has been said, does the hon. Member for Worthing (Mr. Higgins) wish to withdraw the Amendment?

Mr. Higgins: In that case, Dr. King, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. William Clark: I beg to move Amendment No. 665, in page 107, line 41, to leave out from "rate" to "deducted" in line 42.
I assume, Dr. King, that it would be for the convenience of the Committee to discuss at the same time Amendment No. 766, in page 110, line 2, to leave out from "applies" to the second "the" in line 6.

The Chairman: Yes, if the Committee so wishes.

Mr. Clark: Also, although they are not selected, I think that Amendments Nos. 666, 667 and 668 all go together with Amendment No. 665 and can be related thereto.

The Minister without Portfolio (Sir Eric Fletcher): Surely, if an Amendment is not selected it is not possible to discuss it with an Amendment which has been selected.

Mr. Clark: Perhaps I did not make myself clear. I was not suggesting that these Amendments should be selected. In the circumstances, I think that it would be better to deal with Amendment No. 665, discussing with it No. 766.
This is an extremely technical Amendment. The effect of sub-paragraph (2,a) of Clause 80 is to accelerate by one year the restrictions imposed where a company is assessed to Income Tax on its actual income for the year 1965–66. There is in the Clause what might be termed a net United Kingdom rate restriction. This restriction affects many companies with investment incomes. Such companies as investment trusts, for example, are covered. Such well known companies as Courtaulds, I.C.I., and Imperial Tobacco are affected.
The present position is that in the case of a company which in the year ended 5th April, 1966, had franked income of£100, the assessment will be for£100, and a gross dividend of£100 can be paid. Less tax, which is£41, that gives a net dividend of£59. If we assume that there is a net United Kingdom rate of 4s. in the£100 income, the net United Kingdom rate multiplied by 100 gives£20. As the Clause stands, the position

will be that out of the net dividend of£58 15s.—it is essential to work backwards, and it means that the gross dividend is£78 15s., and tax at 8s. 3d. in the£ is£32 9s. 7d.—there will be a net dividend of£46 5s. 5d. In addition to that, one has to pay the Inland Revenue the tax deducted-£32 9s. 7d.—and the relief under the Clause on£100 at 4s. in the£ is£20. Consequently there is extra tax of£12 9s. 7d.
If we take unfranked income of the same figure,£100—it may be debenture interest—with tax at the rate of 8s. 3d. in the£, that will be£41 5s., and there is£15 in Profits Tax., and we are left with a net amount of£43 15s., and the dividend that could be paid at the moment is£74 9s., which with tax at the standard rate of 8s. 3d. deducted, gives a net amount of£43 15s.
With the same income under Corporation Tax,£100–I take for convenience Corporation Tax at 40 per cent., because it gives a net figure of£60—Income Tax at 8s. 3d. must be deducted from it, and that amounts to£24 15s., and that gives a net amount of£35 5s. There is a surplus credit here of£16 5s., which means an additional payment to the Inland Revenue, instead of£24 15s., of£8 10s.
I am sorry to give all these figures, but it is essential in order to come to the conclusion with which I am sure the Chief Secretary will agree. It is like computing profits and trying to explain to a client how his profit on paper, which is£100, really works out at about£348.
The summary for a company with£100 of franked income, assuming a 4s. net United Kingdom rate, is that there will be additional tax of£12 9s. 7d., and with unfranked income there will be additional tax of£8 10s. paid., making the total amount of extra tax paid£20 19s. 7d. Thus, the application of the Clause means that the Income Tax on£200 of dividend is increased by 10½per cent.
9.30 p.m.
The idea of this Amendment is to obviate the anomaly. I am sure that the Government when deciding on Corporation Tax and the transitional relief period did not foresee the difficulty that would occur. I do not intend to go through all the arguments about people with money in investment trusts, charities and the rest—all small people with money


in these various organisations of savings—but it is fair to say that the transitional relief in the Bill, with the United Kingdom rate restricted, will mean a 10½per cent. increase in the Income Tax on£100.
I could give other figures, but I will not weary the Committee with the computations. However, if we take the example of£10,000 franked income and£4,000 unfranked income, the extra tax payable is£1,948. I can assure the Minister without Portfolio that these figures have been extremely carefully worked out. If he would like the computations, I will give them to him. The Chief Secretary was here when I gave the simple figure for working up to the others and he did not refute it.
If we go higher up in the scale with an investment company or a company with investment income of£10 million,£5 million of which is franked and£5 million is unfranked, we get the position with net United Kingdom relief of three to two-and-a-half, in which£1,262,500 more is paid in tax.
The Chancellor told us a few days ago that many figures had been worked out and that he knew the cost of these concessions. This Amendment was on the Order Paper some weeks ago and I am sure that the Inland Revenue has now worked out what it would cost to get rid of the anomaly. I hope that the Minister without Portfolio is seized of the point that there is an anomaly. I am sure that the Government did not intend to create such an anomaly.
To make a company suffer net United Kingdom rate restriction would be a complete reversal of Section 350 of the Income Tax Act, 1952, under which the net United Kingdom rate affects the shareholder. If one is the owner of shares which have net United Kingdom rate, repayment—if one's allowance enables repayment—is restricted to net United Kingdom rate. Under Section 350 there was a restriction of the net United Kingdom rate on the shareholder. Here, the Government—I think unwittingly—have applied that restriction to the company. I hope that the hon. Gentleman will promise to look at this again in the light of the figures I have given. It is an important though an extremely technical point. If he agrees that the figures prove

that there will be diminution of income I hope that he will do something on the Report stage.

Mr. Geoffrey Lloyd: I want briefly to support the Amendment, without following my hon. Friend the Member for Nottingham, South (Mr. William Clark) into the virtuosities of his financial argument. Frankly, I am not competent to do so, but I have taken careful advice and I hope that the Committee will bear with me if I now read out what I believe to be the purpose of the Clause and of the Amendment.
We feel that an investment trust should not be penalised for paying a dividend after 6th April, 1966, out of income received before that date which has already suffered Income Tax and Profits Tax. I understand that the Clause recognises that there is a grievance but that the relief afforded is inadequate. The reason is that the rules of the Corporation Tax are being applied to the company before it is liable to that tax. I merely ask the hon. Gentleman to consider the matter, and I should like to support the Amendment.

Sir Eric Fletcher: The hon. Member for Nottingham, South (Mr. William Clark) has argued his Amendment with great lucidity and I accept at once the figures he quoted. It seemed to me as I followed what he said that his arithmetic was impeccable; and I do not think that any hon. Member would wish to quarrel with his calculations of the effect of the Amendment in certain cases.
However, I must quarrel with the assumptions which underlay his argument. We have considered the implications of this matter and do not regard this as an anomaly. We think that the Clause is precisely right as drafted and that it would be illogical and inconsistent with the whole purpose of the Clause if the Amendment were accepted.
I am not sure that the hon. Gentleman listened attentively to what my right hon. Friend said in reply to the previous Amendment; but I am sure that he will appreciate that this is a relieving Clause. It is difficult to say of any relieving Clause that it creates an injustice. It is intended to relieve companies in certain circumstances and in certain circumstances only. As my right hon. Friend made perfectly clear a few moments ago, the whole


intention behind this Clause is to give relief in those cases where companies have suffered United Kingdom tax, and not otherwise.
The ground on which we cannot accept this Amendment is precisely that on which we reisted the shipping Amendment. Real tax had not been paid by the shipping company and in this instance the restriction to the United Kingdom rate is deliberate, because we want to give relief to companies which have paid United Kingdom tax. It is not relevant that they might have paid tax elsewhere.
It is part of the whole concept of the changeover to Corporation Tax and the overseas relief and so on which we have been considering that there is now a new system. The Clauses deals with transitional payments and the Chancellor has said that there are certain special cases arising out of the calculation of profit in which some relief is proper to avoid the double payment of United Kingdom tax. It would be going far beyond the whole concept of this relieving Clause if the relief were to be extended not only to United Kingdom tax, but overseas tax as well.
That would obviously involve a burden on the Revenue which cannot be justified. I was asked if I could give the precise figure. I cannot give a precise figure because, as before, it would depend upon the dividends paid and we do not know what they will be. But the amount would no doubt be substantial and in fairness to other taxpayers it is a burden that ought not to be thrown upon the Revenue.

Mr. William Clark: The Minister without Portfolio says that this is a relief and consequently a relief cannot be penal. What he did not say, and I am sure I said it in my opening remarks, was that this applies where a company is not assessed tilt: following year. It is assessed on its actual income and it consequently means that for the year 1965–66 this relief is going to be inadequate for companies assessed on an actual basis for that year. This is a very serious point and I do not agree that the cost of the relief would be considerable because it refers only to the companies whose assessment is based on their actual income.
I hope that the Minister without Portfolio will have second thoughts, because we attach a tremendous amount of importance to this. There is a lot of time

between now and Report for the Minister without Portfolio to put down an Amendment. There is no question of any tax avoidance. All we want to do is to obviate this obvious anomaly, which applies only to companies where they are assessed on their actual income.

Amendment negatived.

Mr. Ian Lloyd: I beg to move Amendment No. 572, in page 108, line 38, to leave out paragraph (b) and insert:
(b) the distributable profits for the three financial years shall he arrived at by taking—

(i) the profits on which corporation tax is charged for those years (after adjustment for losses sustained in any of those years computed in accordance with the provisions of this Part of this Act) and adding thereto the amount of any deductions made in assessing that tax for losses, allowances or expenses of management of any period falling outside those years or for investment allowances or scientific research allowances;
(ii) deducting from the profits as computed in sub-paragraph (i) above the corporation tax which would have been chargeable on those profits after adjustment for any credit for foreign tax; and
(iii) deducting from the profits as computed in sub-paragraph (ii) above an amount equivalent to the director's remuneration not deductible in computing the profits for the three financial years and adding thereto franked investment income and group income received in those years:

Provided that the company may elect that the distributable profits, as arrived at under this paragraph, shall be reduced by the amount of any additions made under sub-paragraph (i) above to the extent that the company has available in the three financial years unabsorbed losses or unabsorbed capital allowances and to the extent that the company elects to apply such losses or allowances in reducing distributable profits; and, when such losses or allowances are used in this manner, they shall be deemed to have been granted effectively for all purposes of taxation and any carry forward of such losses or allowances shall be correspondingly reduced. Insofar as the three years surplus is increased by the utilisation of such unabsorbed losses or unabsorbed capital allowances, the limitation contained in subsection 2(b) relating to income tax ultimately borne by the company shall not apply.
I am sure hon. Members on both sides of the Committee who have the interests of the maritime industry at heart will be glad to hear the assurances which the Chief Secretary gave some moments ago of the willingness of the Government to consider the special position of these


industries which, for reasons the Committee well knows, find it extremely difficult to pay a reasonable return on their capital. This is simply because they compete in a particularly hostile environment in which economic and national considerations dictate to the Governments of other countries that they should create special conditions for their shipping industries which make it very difficult for our shipping industry to compete, on a free-enterprise basis.
The Chief Secretary has suggested that fears of being able to do so depend to some extent on his argument that we would be driving a coach and horses through the Finance Bill if certain of our Amendments were accepted. I am sure it is not the case because there is no question of driving a large stagecoach and six horses but perhaps a most decorous phaeton which is far more preferable than what the Government are doing, which is to drive a Stalin tank through the confidence of the business community—a far more damaging thing in my submission.
This Amendment rearranges subsection (5,b) and makes two changes in substance. First, by including the words in brackets, it seeks to make it clear that
…the profits on which Corporation tax is charged for those years
shall be the algebraic sum of any profits and losses in those years computed on Corporation Tax lines. Secondly, it seeks to relate the deduction for Corporation Tax to the adjusted distributable income. It is anomalous if a company pays Corporation Tax on the full amount of its profits and carries forward to later years any losses applicable to earlier years or investment allowances, it would obtain greater relief under this Section than if it used such losses and allowances. Hence, the Amendment seeks to change the deduction for the Corporation Tax so charged—page 108, lines 40 and 41—to the tax which would have been chargeable after the adjustments had been made.
9.45 p.m.
This Amendment, in the proviso, gives not only shipping companies but any company with unabsorbed losses or unabsorbed capital allowances—and it is probably right to emphasise both—an option to apply such losses or allowances

to reducing the distributable profits. Two conditions which are necessary are, first, that losses or allowances so utilised shall be deemed to be effectively used for tax purposes, and, secondly, that the distributable profits should have been increased by the addition of losses relating to earlier years and/or investment or research allowances. In so far as the three-year surplus is increased by using losses or capital allowances, the overriding limit in subsection (2,b) would not apply.
This brings us back to the question of investment allowances. I do not want to go over the arguments which have been adduced in the debate except to say this. As the figure of£150 million has been mentioned, and as my hon. Friend the Member for Dorset, West (Mr. Wingfield Digby) has pointed out that there are other aspects of this, I should like to enlarge the point by emphasising that in 1958 all the unused allowances in the shipping industry were absorbed. Of the£150 million outstanding, half represents capital allowances and half investment allowances. Perhaps the Chief Secretary would comment on this point.
More generally, if we consider the position of an industry such as the shipping industry, we find that the total investment allowances employed in the years 1954 to 1963 amounted to£487 million and that the total capital allowances used amounted to£762 million. As has been pointed out, these are very substantial figures, and we cannot allow the case to go by default by making comparisons with what is, in fact, a very much smaller sum.

Mr. Diamond: I have listened very carefully to what the hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) has said. I think that he will recognise that essentially we are back on the same point. The effect of the Amendment is to remove the test that the relief is given by reference to profits which have borne tax.
We are not prepared to recommend the Committee to adopt that. It would, once more, be opening the door for a continuation of the practice which I previously described, and have no wish to detain the Committee by describing again, of creating a method under which individuals could claim repayment of tax which had never been paid to the Inland Revenue.

Mr. Barber: We have dealt with a series of Amendments to what I think the Chief Secretary would agree is in many ways a highly complicated Clause, although its purpose is clear to us all. What is in issue is whether the Clause, as drafted, achieves the avowed objects of the Chancellor of the Exchequer, and, in particular, whether it is apt for the shipping industry to which the Chief Secretary, I think, will agree special considerations apply.
My hon. Friend the Member for Portsmouth, Langstone (Mr. Ian Lloyd) has explained the purpose of the Amendment with admirable clarity. I have with me a number of notes also explaining the technicalities, because I was not clear what the intention was when I first saw the Amendment. As to the substance of the matter, however, I think that the Amendment is clear to all of us in view of my hon. Friend's explanation. Unlike the first Amendment which we discussed on the Clause, No. 623, this one is couched in general terms, although I would be less than frank with the Committee if I did not say that at least one of the objects is to be of particular assistance to the shipping industry. I hope that the Chief Secretary will agree at least that the Amendment is none the worse because one of the main beneficiaries would the shipping industry.
At this stage of our proceedings, I certainly do not propose to go over the ground again as to the various reasons why we, and, probably, also the Government, consider the shipping industry to be unique. My hon. Friend the Member for Worthing (Mr. Higgins) dealt with this aspect admirably on a previous Amendment. I add only that the shipping industry has for many years had special taxation treatment. There was the 40 per cent. investment allowance and there was the undertaking which was given by one of my right hon. Friends when Chancellor of the Exchequer that the investment allowance would not be altered during the lifetime of the last Parliament, and, of course, it was not altered. I have always understood that it was the philosophy of the Labour Party to be in favour of deliberate tax discrimination in company taxation, although they have rather shied against it in matters of individual taxation.
In answer to a previous Amendment, the Chief Secretary said that he was anxious to help the shipping industry but that that Amendment was not the way to do it. He has said more or less the same about the present Amendment. What worries me is that we have heard this argument before on a number of occasions when we have discussed Amendments which either specifically referred to the shipping industry or which were couched in general terms but had the shipping industry in mind. We have had absolutely nothing from the Chief Secretary or his right hon. Friend to give us any hope that before we reach Third Reading anything will be done for the shipping industry.
The Chief Secretary said of a previous Amendment to the Clause that it was driving a coach and horses through the Corporation Tax. Even though the terms of this Amendment involve the delicate issue of the treatment of capital allowances, it cannot be said in all honesty that an Amendment to a Clause which is concerned with transitional relief for companies paying dividends out of pre-1966–67 profits is driving a coach and horses through the Corporation Tax.
I am disappointed, as my hon. Friends will be, with the reply which we have had. I do not think that my hon. Friend the Member for Langstone is wedded to this method of helping the shipping industry. I recognise the force of some of the Chief Secretary's arguments, but the stage must come when we on this side must express in the Division Lobby our dissatisfaction with the attitude of the Chancellor to the shipping industry. Having listened patiently to what was said on the earlier Amendments, we must do so on this occasion.
Had we been given a glimmer of hope by the Chief Secretary that on Report something might be done to alleviate the difficulties of the shipping industry to show that the Government were prepared to treat it as a unique industry, as it was treated for tax purposes by the previous Government, I certainly would not have advised by hon. Friends to press the Amendment. On these general grounds, however, rather than in relation to the specific proposals contained in the Amendment, I must on this occasion advise my hon. Friends to divide the Committee.

Question put, That the words proposed to be left out stand part:—

The Committee divided: Ayes 288, Noes 282.

Division No. 197.]
AYES
[9.54 p.m.


Abse, Leo
Fletcher, Ted (Darlington)
McCann, J.


Albu, Austen
Fletcher, Raymond (Ilkeston)
MacColl, James


Al[...]aun, Frank (Salford, E.)
Floud, Bernard
MacDermot, Niall


Alldritt, Walter
Foley, Maurice
McGuire, Milchael


Allen, Scholefield (Crewe)
Foot, Michael (Ebbw Vale)
McInnes, James


Armstrong, Ernest
Ford, Ben
McKay, Mrs. Margaret


Atkinson, Norman
Fraser, Rt. Hn. Tom (Hamilton)
Mackenzie, Gregor (Rutherglen)


Bacon, Miss Alice
Freeson, Reginald
Mackie, John (Enfield, E.)


Bagier, Gordon A. T.
Galpern, Sir Myer
McLeavy, Frank


Barnett, Joel
Garrett, W. E.
MacMillan, Malcolm


Baxter, William
Garrow, A.
Mahon, Peter (Preston, S.)


Beaney, Alan
George, Lady Megan Lloyd
Mahon, Simon (Bootle)


Bellenger, Rt. Hn. F. J.
Ginsburg, David
Mallalieu,J.P.W.(Huddersfield,E.)


Bence, Cyril
Gourlay, Harry
Manuel, Archie


Benn, Rt. Hn. Anthony Wedgwood
Greenwood, Rt. Hn. Anthony
Mapp, Charles


Bennett, J. (Glasgow, Bridgeton)
Gregory, Arnold
Marsh, Richard


Binns, John
Grey, Charles
Mason, Roy


Bishop, E. S.
Griffiths, David (Rother Valley)
Maxwell, Robert


Blackburn, F.
Griffiths, Rt. Hn. James (Llanelly)
Mayhew, Christopher


Blenkinsop, Arthur
Griffiths, Will (M'chester, Exchange)
Mellish, Robert


Boardman, H.
Gunter, Rt. Hn. R. J.
Mikardo, Ian


Boston, T. G.
Hale, Leslie
Millan, Bruce


Bowden, Rt. Hn. W. (Leics S. W.)
Hamilton, James (Bothwell)
Miller, Dr. M. S.


Boyden, James
Hamilton, William (West Fife)
Milne, Edward (Blyth)


Braddock, Mrs. E. M.
Hamling, William (Woolwich, W.)
Molloy, William


Bradley, Tom
Hannan, William
Morris, Alfred (Wythenshawe)


Bray, Dr. Jeremy
Harrison, Walter (Wakefield)
Morris, Charles (Openshaw)


Brown, Rt. Hn. George (Belper)
Hart, Mrs. Judith
Morris, John (Aberavon)


Brown, Hugh D. (Glasgow, Provan)
Hattersley, Roy
Murray, Albert


Brown, R. W. (Shoreditch &amp; Fbury)
Hazell, Bert
Neal, Harold


Buchan, Norman (Renfrewshire, w.)
Heffer, Eric S.
Newens, Stan


Buchanan, Richard
Henderson, Rt. Hn. Arthur
Noel-Baker, Francis (Swindon)


Butler, Herbert (Hackney, C.)
Herbison, Rt. Hn. Margaret
Noel-Baker,Rt.Hn.Philip(Derby,S.)


Butler, Mrs. Joyce (Wood Green)
Hill, J. (Midlothian)
Norwood, Christopher


Callaghan, Rt. Hn. James
Hobden, Dennis (Brighton, K'town.)
Oakes, Gordon


Car[...]ichael, Neil
Holman, Percy
Ogden, Eric


Carter-Jones, Lewis
Horner, John
Oram, Albert E. (E. Ham, S.)


Castle, Rt. Hn. Barbara
Houghton, Rt. Hn. Douglas
Orbach, Maurice


Chapman, Donald
Howarth, Harry (Weilingborough)
Orme, Stanley


Coleman, Donald
Howarth, Robert L. (Bolton, E.)
Oswald, Thomas


Conlan, Bernard
Howell, Denis (Small Heath)
Owen, Will


Corbet, Mrs. Freda
Howie, W.
Padley, Walter


Cousins, Rt. Hn. Frank
Hoy, James
Page, Derek (King's Lynn)


Craddock, George (Bradford, S.)
Hughes, Emrys (S. Ayrshire)
Paget, R. T.


Crawshaw, Richard
Hughes, Hector (Aberdeen, N.)
Palmer, Arthur


Cronin, John
Hunter, Adam (Dunfermline)
Pannell, Rt. Hn. Charles


Crosland, Rt. Hn. Anthony
Hunter, A. E. (Feltham)
Park, Trevor (Derbyshire, S.E.)


Crossman, Rt. Hn. R. H. S.
Hynd, H. (Accrington)
Parker, John


Cullen, Mrs. Alice
Irvine, A. J. (Edge Hill)
Parkin, B. T.


Dalyell, Tam
Irving, Sydney (Dartford)
Pavitt, Laurence


Darling, George
Jackson, Colin
Pearson, Arthur (Pontypridd)


Davies, G. Elfed (Rhondda, E.)
Janner, Sir Barnett
Peart, Rt. Hn. Fred


Davies, Harold (Leek)
Jeger, George (Goole)
Pentland, Norman


Davies, Ifor (Gower)
Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)
Perry, Ernest G.


Davies, S. O. (Merthyr)
Jenkins, Hugh (Putney)
Popplewell, Ernest


de Freitas, Sir Geoffrey
Jenkins, Rt. Hn. Roy (Stetchford)
Prentice, R. E.


Delargy, Hugh
Johnson, Carol (Lewisham, S.)
Price, J. T. (Westhoughton)


Dell, Edmund
Jones, Dan (Burnley)
Probert, Arthur


Dempsey, James
Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Pursey, Cmdr. Harry


Diamond, John
Jones, J. Idwal (Wrexham)
Randall, Harry


Dodds, Norman
Jones, T. W. (Merion[...]th)
Rankin, John


Doig, Peter
Kelley, Richard
Redhead, Edward


Donnelly, Desmond
Kenyon, Clifford
Rees, Merlyn


Driberg, Tom
Kerr, Mrs. Anne (R'ter &amp; Chatham)
Reynolds, G. W.


Duffy, Dr. A. E. P.
Kerr, Dr. David (W'worth, Central)
Rhodes, Geoffrey


Dunn, James A.
Lawson, George
Richard, Ivor


Dunnett, Jack
Leadbitter, Ted
Roberts, Albert (Normanton)


Edelman, Maurice
Ledger, Ron
Roberts, Goronwy (Caernarvon)


Edwards, Rt. Hn. Ness (Caerphilly)
Lee, Rt. Hn. Frederick (Newton)
Robertson, John (Paisley)


English, Michael
Lee, Miss Jennie (Cannock)
Robinson, Rt. Hn.K.(St. Pancras, N.)


Ennals, David
Lever, Harold (Cheetham)
Rodgers, William (Stockton)


Ensor, David
Lewis, Arthur (West Ham, N.)
Rogers, George (Kensington, N.)


Evans, Albert (Islington, S.W.)
Lewis, Ron (Carlisle)
Rose, Paul B.


Evans, Ioan (Birmingham, Yardley)
Lipton, Marcus
Ross, Rt. Hn. William


Fernyhough, E.
Lomas, Kenneth
Sheldon, Robert


Finch, Harold (Bedwellty)
Loughlin, Charles
Shinwell, Rt. Hn. E.


Fitch, Alan (Wigan)
Mabon, Dr. J. Dickson
Shore, Peter (Stepney)


Fletcher, Sir Eric (Islington, E.)
McBride, Neil
Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)




Short, Mrs. Renée (W'hampton,N.E.)
Swingler, Stephen
Weitzman, David


Silkin, John (Deptford)
Symonds, J. B.
Wells, William (Walsall, N.)


Silkin, S. C. (Camberwell, Dulwich)
Taverne, Dick
White, Mrs. Eirene


Silverman, Julius (Aston)
Taylor, Bernard (Mansfield)
Whitlock, William


Silverman, Sydney (Nelson)
Thomas, George (Cardiff, W.)
Wigg, Rt. Hn. George


Skeffington, Arthur
Thomas, Iorwerth (Rhondda, W.)
Wilkins, W. A.


Slater, Mrs. Harriet (Stoke, N.)
Thomson, George (Dundee, E.)
Willey, Rt. Hn. Frederick


Slater, Joseph (Sedgefield)
Thornton, Ernest
Williams, Alan (Swansea, W.)


Small, William
Tinn, James
Williams, Clifford (Abertillery)


Smith, Ellis (Stoke, S.)
Tomney, [...]rank
Williams, W. T. (Warrington)


Snow, Julian
Tuck, Raphael
Willis, George (Edinburgh, E.)


Soskice, Rt. Hn. Sir Frank
Urwin, T. W.
Wilson, William (Coventry, S.)


Spriggs, Leslie
Varley, Eric G.
Winterbottom, R. E.


Storehouse, John
Wainwright, Edwin
Wyatt, Woodrow


Mores, William
Walden, Brian (All Saints)
Yates, Victor (Ladywood)


Strauss, Rt. Hn. G. R. (Vauxhall)
Walker, Harold (Doncaster)
Zilliacus, K.


Stross,SirBarnett(Stoke-on-Trent,C.)
Wallace, George



Summerskill, Hn. Dr. Shirley
Warbey, William
TELLERS FOR THE NOES:


Swain, Thomas
Watkins, Tudor
Mr. O'Malley and Mr. Harper.




NOES


Agnew, Commander Sir Peter
Crosthwaite-Eyre, Col. Sir Oliver
Hendry, Forbes


Alison, Michael (Barkston Ash)
Crowder, F. P.
Higgins, Terence L.


Allan, Robert (Paddington, S.)
Cunningham, Sir Knox
Hill, J. E. B. (S. Norfolk)


Allason, James (Hemel Hempstead)
Curran, Charles
Hirst, Geoffrey


Amery, Rt. Hn. Julian
Currie, G. B. H.
Hobson, Rt. Hn. Sir John


Anstruther-Gray, Rt. Hn. Sir W.
Dalkeith, Earl of
Hogg, Rt. Hn. Quintin


Astor, John
Dance, James
Hooson, H. E.


Atkins, Humphrey
Davies, Dr. Wyndham (Perry Barr)
Hopkins, Alan


Awdry, Daniel
d'Avigdor-Goldsmid, Sir Henry
Hordern, Peter


Baker, W. H. K.
Dean, Paul
Hornsby-Smith, Rt. Hn. Dame P.


Balniel, Lord
Deedes, Rt. Hn. W. F.
Howard, Hn. G. R. (St. Ives)


Barber, Rt. Hn. Anthony
Digby, Simon Wingfield
Hunt, John (Bromley)


Barlow, Sir John
Dodds-Parker, Douglas
Hutchison, Michael Clark


Batsford, Brian
Doughty, Charles
Irvine, Bryant Godman (Rye)


Beamish, Col. Sir Tufton
Drayson, G. B.
Jenkin, Patrick (Woodford)


Bell, Ronald
du Cann, Rt. Hn. Edward
Jennings, J. C.


Bennett, Sir Frederic (Torquay)
Eden, Sir John
Johnson Smith, G. (East Grinstead)


Bennett, Dr. Reginald (Gos &amp; Fhm)
Elliot, Capt. Walter (Carshalton)
Johnston, Russell (Inverness)


Berkeley, Humphry
Elliott, R. W.(N'c'tle-upon-Tyne,N.)
Jones, Arthur (Northants, S.)


Berry, Hn. Anthony
Emery, Peter
Joseph, Rt. Hn. Sir Keith


Bessell, Peter
Errington, Sir Eric
Kaberry, Sir Donald


Biffen, John
Eyre, Reginald
Kerr, Sir Hamilton (Cambridge)


Biggs-Davison, John
Farr, John
Kershaw, Anthony


Bingham, R. M.
Fell, Anthony
Kilfedder, James A.


Birch, Rt. Hn. Nigel
Fisher, Nigel
Kimball, Marcus


Black, Sir Cyril
Fletcher-Cooke, Charles (Darwen)
King, Evelyn (Dorset, S.)


Blaker, Peter
Fletcher-Cooke, Sir John (S'pton)
Kirk, Peter


Bossom, Hn. Clive
Foster, Sir John
Lagden, Godfrey


Bowen, Roderic (Cardigan)
Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)
Lancaster, Col. C. G.


Box, Donald
Galbraith, Hn. T. G. D.
Langford-Holt, Sir John


Boyd-Carpenter, Rt. Hn. J.
Gammans, Lady
Legge-Bourke, Sir Harry


Boyle, Rt. Hn. Sir Edward
Gardner, Edward
Lewis, Kenneth (Rutland)


Braine, Bernard
Gibson-Watt, David
Litchfield, Capt. John


Brewis, John
Giles, Rear-Admiral Morgan
Lloyd,Rt.Hn. Geoffrey (Sut'nC'dfield)


Brinton, Sir Tatton
Gilmour, Ian (Norfolk, Central)
Lloyd, Ian (P'tsm'th, Langstone)


Brooke, Rt. Hn. Henry
Gilmour, Sir John (East Fife)
Lloyd, Rt. Hn. Selwyn (Wirral)


Brown, Sir Edward (Bath)
Glover, Sir Douglas
Longden, Gilbert


Bruce-Gardyne, J.
Godber, Rt. Hn. J. B.
Loveys, Walter H.


Bryan, Paul
Goodhart, Philip
Lubbock, Eric


Buck, Antony
Goodhew, Victor
Lucas, Sir Jocelyn


Bullus, Sir Eric
Gower, Raymond
McAdden, Sir Stephen


Burden, F. A.
Grant, Anthony
Mackenzie, Alasdair (Ross&amp;Crom'ty)


Butcher, Sir Herbert
Gresham Cooke, R.
Mackie, George Y. (C'ness &amp; S'land)


Buxton, Ronald
Grieve, Percy
McLaren, Martin


Campbell, Gordon
Griffiths, Eldon (Bury St. Edmunds)
Maclean, Sir Fitzroy


Carlisle, Mark
Griffiths, Peter (Smethwick)
Macleod, Rt. Hn. Iain


Cary, Sir Robert
Gurden, Harold
McMaster, Stanley


Channon, H. P. G.
Hall, John (Wycombe)
McNair-Wilson, Patrick


Chataway, Christopher
Hall-Davis, A. G. F.
Maginnis, John E.


Chichester-Clark, R.
Hamilton, Marquess of (Fermanagh)
Maitland, Sir John


Clark, Henry (Antrim, N.)
Hamilton, M. (Salisbury)
Marples, Rt. Hn. Ernest


Clark, William (Nottingham, S.)
Harris, Frederic (Croydon, N.W.)
Marten, Neil


Clarke, Brig. Terence (Portsmth, W.)
Harris, Reader (Heston)
Mathew, Robert


Cole, Norman
Harrison, Brian (Maldon)
Maude, Angus


Cooke, Robert
Harrison, Col. Sir Harwood (Eye)
Mawby, Ray


Cooper-Key, Sir Neill
Harvey, John (Walthamstow, E.)
Maxwell-Hyslop, R. J.


Curdle, John
Harvie Anderson, Miss
Maydon, Lt.-Cmdr. S. L. C.


Corfield, F. V.
Hastings, Stephen
Meyer, Sir Anthony


Costain, A. P.
Hawkins, Paul
Mills, Peter (Torrington)


Courtney, Cdr. Anthony
Hay, John
Mills, Stratton (Belfast, N.)


Craddock, Sir Beresford (Spelthorn[...]e)
Heald, Rt. Hn. Sir Lionel
Miscampbell, Norman


Crawley, A[...]idan
Heath, Rt. Hn. Edward
Mitchell, David







Monro, Hector
Redmayne, Rt. Hn. Sir Martin
Thompson, Sir Richard (Croydon, S.)


More, Jasper
Rees-Davies, W. R.
Thorneycroft, Rt. Hn. Peter


Morrison, Charles (Devizes)
Renton, Rt. Hn. Sir David
Tiley, Arthur (Bradford, W.)


Mott-Radclyffe, Sir Charles
Ridley, Hn. Nicholas
Tilney, John (Wavertree)


Munro-Lucas-Tooth, Sir Hugh
Ridsdale, Julian
Turton, Rt. Hn. R. H.


Murton, Oscar
Roberts, Sir Peter (Heeley)
Tweedsmuir, Lady


Neave, Airey
Robson Brown, Sir William
van Straubenzee, W. R.


Nicholls, Sir Harmar
Rodgers, Sir John (Sevenoaks)
Vaughan-Morgan, Rt. Hn. Sir John


Nicholson, Sir Godfrey
Roots, William
Vickers, Dame Joan


Noble, Rt. Hn. Michael
Royle, Anthony
Walder, David (High Peak)


Nugent, Rt. Hn. Sir Richard
St. John-Stevas, Norman
Walker, Peter (Worcester)


Onslow, Cranley
Scott-Hopkins, James
Walker-Smith, Rt. Hn. Sir Derek


Orr, Capt. L. P. S.
Sharples, Richard
Wall, Patrick


Orr-Ewing, Sir Ian
Sinclair, Sir George
Walters, Dennis


Osborn, John (Hallam)
Smith, Dudley (Br'ntf'd &amp; Chiswick)
Ward, Dame Irene


Osborne, Sir Cyril (Louth)
Smyth, Rt. Hn. Brig. Sir John
Weatherill, Bernard


Page, John (Harrow, W.)
Spearman, Sir Alexander
Webster, David


Page, R. Graham (Crosby)
Speir, Sir Rupert
Wells, John (Maidstone)


Pearson, Sir Frank (Clitheroe)
Stainton, Keith
Whitelaw, William


Peel, John
Stanley, Hn. Richard
Williams, Sir Rolf Dudley (Exeter)


Percival, Ian
Steel, David (Roxburgh)
Wills, Sir Gerald (Bridgwater)


Peyton, John
Stodart, Anthony
Wilson, Geoffrey (Truro)


Pickthorn, Rt. Hn. Sir Kenneth
Stoddart-Scott, Col. Sir Malcolm
Wise, A. R.


Pike, Miss Mervyn
Studholme, Sir Henry
Wolrige-Gordon, Patrick


Pitt, Dame Edith
Talbot, John E.
Wood, Rt. Hn. Richard


Pounder, Rafton
Taylor, Sir Charles (Eastbourne)
Woodhouse, Hn. Christopher


Powell, Rt. Hn. J. Enoch
Taylor, Edward M. (G'gow,Cathcart)
Woodnutt, Mark


Price, David (Eastleigh)
Taylor, Frank (Moss Side)
Wylie, N. R.


Prior, J. M. L.
Teeling, Sir William
Yates, William (The Wrekin)


Pym, Francis
Temple, John M.
Younger, Hn. George


Quennell, Miss J. M.
Thatcher, Mrs. Margaret



Ramsden, Rt. Hn. James
Thomas, Sir Leslie (Canterbury)
TELLERS FOR THE NOES:


Rawlinson, Rt. Hn. Sir Peter
Thomas, Rt. Hn. Peter (Conway)
Mr. MacArthur and




Mr. Ian Fraser.

Mr. Diamond: I beg to move Amendment No. 612, in page 109, line 30, after the second "the", to insert "financial".
This is a drafting Amendment—[Interruption.]

The Chairman: Order. I shall be grateful if hon. Members will leave the Chamber quietly. It is almost impossible even for hon. Members to hear the Chairman calling them to order.

Mr. Diamond: Subsection (7) of the Clause refers to the amount of Corporation Tax to which a company is chargeable for the year 1965. In view of the language used it is reasonably clear that this is intended to have reference to the financial year 1965—that is to say, the 12 months from 1st April, 1965, to 31st March, 1966, but the insertion of the missing word will save any argument.

Amendment agreed to.

Mr. Edward M. Taylor: I beg to move Amendment No. 673, in page 110, line 10, at the end to add:
(11) In computing distributable profits or losses for the purposes of this section, deductions for writing-down allowances shall be deemed to have been made before deductions are made for investment allowances.
As you will appreciate, Dr. King, in the Division on the last Amendment we were expressing our disappointment at the fact that the Government have made no

concession of any value to the shipping industry. The Amendment does not deal with the problems of the shipping industry, but we felt that if it were accepted it would help to clarify a situation which will affect shipping firms more than any other firms. The Amendment does not ask for any kind of special concession; it merely endeavours to clarify a situation which certainly needs to be clarified.
I would point out to the Minister without Portfolio that even if he accepts the Amendment we will not regard it as in any way absolving him from the responsibility of making some real concessions to the industry.
The object of the Amendment is to make clear, particularly in cases where profits are insufficient to absorb the whole of capital allowances due in the same period, the order in which the write-down allowances and the investment allowances are deemed to be made—in other words, whether the first deduction will be writedown allowances or investment allowances. This will arise, in particular, in cases where the profits are insufficient to absorb the whole of the capital allowances and, clearly, will arise particularly in cases where there is a good deal of capital employed and a good deal of investment allowance to be claimed. In subsection (5,b) of Clause 80, the rules are explained for calculating


distributable profits for the purpose of that Clause. In that subsection an attempt has been made to calculate what might be described as profits computed on a commercial scale. We have all the details in subsection (5,b).
The calculation, of course, begins with profits for Corporation Tax purposes. Then there are several adjustments to be made for exceptional items which may figure in profits computed for Corporation Tax. For example, deductions can be made and are allowed for losses and allowances brought forward from the previous period. These are disallowed under this Clause, as are deductions for investment allowances and for scientific research allowances. The principle, so far as I can see, appears to be that these are considered to be special allowances not relating to the general normal position of the company. On the other hand, no adjustment is made for write-down allowances. These are regarded as a normal annual expense. The general division seems to be that if it is a normal annual expense an adjustment is not made, but if it is something special an adjustment is made. A difficulty or doubt could arise if the aggregate of the write-down allowance and the investment allowance was more than sufficient to extinguish the profit for Corporation Tax purposes. We want to clarify what deduction is made first—what is given priority. If the investment allowance is deemed to be given priority over the write-down allowance, then the larger amount arrived at is the distributable profit. The other situation would be the case if the write-down allowance came first.
What we have in the Amendment is, I am sure, what the Government intended, but I would suggest that, in the Clause, it is not clear. I hope that we can get this clarification and I hope that the Government will accept the Amendment. If the aggregate of the two allowances exceeded the profit and this was treated as a loss, clearly no problem would arise. However, as far as I can see, there is no reference in this Clause to a loss of this sort. All that we want is clarification. I accept that with such a difficult Clause as Clause 80, which has 10 subsections all of which are extremely complicated, it might be considered that to add one more does not help the position, but the whole purpose of the Amendment is

simply to clarify. I hope that the Government can accept it.

Sir Eric Fletcher: The hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) has made his point. He has stated what are the intentions of the Government. I agree with him that the language of this Clause could be improved and the position clarified by the addition of an eleventh subsection as he suggests. Therefore, if he will withdraw his Amendment, I will undertake that an Amendment giving effect to the substance of what he proposes will be put down on Report by my right hon. Friend.

Mr. Edward M. Taylor: I am greatly obliged to the hon. Member. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause, as amended, ordered to stand part of the Bill.

Clause 81.—(TRANSITIONAL RELIEF FOR EXISTING COMPANIES ON CESSATION OF TRADE ETC.)

10.15 p.m.

Mr. Wingfield Digby: I beg to move Amendment No. 419, in page 110, line 14, to leave out from "time" to "then" in line 15.

The Chairman: I suggest that with this Amendment we take Amendment No. 420, in line 21, after "shall", insert:
at the option of the company".
Amendment No. 421, in page 110, leave out line 22.
Amendment No. 422, in line 23, leave out "and" and insert "or".
Amendment No. 423, in page 110, leave out lines 28 to 31.

Mr. Digby: The Clause deals with
Transitional relief for existing companies on cessation of trade".
We have now come to a somewhat narrower point than the whole of shipping industry with which we have dealt previously. The effect of the Amendments would be substantially to rewrite subsection (2). In the shipping industry there are a number of one-ship companies which stand in the same relation as smallholdings do to agriculture, in that they provide a start for the smaller man in the industry. They have been the start of very much bigger things. We believe


these companies to be particularly effective.
The object of the Amendments is to provide that an existing company which ceases to trade shall not be taxed for any longer period than that for which the trade was carried on. I do not think I need go in very great detail into the Clause. By re-writing it in considerable detail we get over the difficulty and companies will be taxed only for the period during which they were earning.

Mr. Diamond: The Amendment arises because, under the present system, we suffer from some complexity in calculating the profits of a business in its opening and closing years. This is one of the many complexities which will be removed by Corporation Tax and things will get a good deal simpler, especially for the business man. [HON. MEMBERS: "Oh."] Someone made a quotation to the effect, "What I say 300,000 times is true". In fact, the quotation is only to the effect, "What I tell you three times is true". I think I have the point. I certainly have the point of the Amendment, which was moved with brevity and clarity by the hon. Member for Dorset, West (Mr. Wingfield Digby). The effect of the Amendment is to remove the tapering provision from the relief given by the Clause. The relief given by the Clause effectively achieves what the hon. Gentleman wishes to achieve, provided that there is a cessation of business within a reasonably short period after the commencement of Corporation Tax.
What the Amendment seeks to achieve is the same kind of relief in perpetuity; that is, for all time we would have to carry over into Corporation Tax one of the complexities of Income Tax. I am sure that it is not the desire of the hon. Gentleman that for all time we should suffer this continuation of complexity. Therefore, what is proposed in the Bill—it is the better proposal, better than that proposed in the Amendment—is that full relief should be given, provided that the cessation takes place in a reasonably short time: a tapering relief as provided in the Bill, provided that cessation takes place a few years afterwards.
Once we have passed that reasonable period of years and Income Tax and all its complexities are forgotten, we can deal

with the matter in a perfectly straightforward way and just have regard to Corporation Tax and its straightforward provision that for every accounting year period the tax is paid and the business man knows exactly where he is. Therefore, I think it would be advisable to accept the provisions in the Bill, and I hope that the Committee will agree.

Sir Harmar Nicholls: I draw attention to the mood of the right hon. Gentleman in refusing this Amendment. He seemed to show great pleasure in removing complexities and difficulties which now exist in the first year and in the last year of a company's existence, and he showed that pleasure although the Bill he now commends to the Committee introduces more complexities and difficulties for all the intervening years. If I had to make a choice, I would rather have the problems of the two years than all the other superimposed problems of the intervening years. I am very disappointed that he did not accept the Amendment.

Mr. Hirst: I support what has just been said by my hon. Friend the Member for Peterborough (Sir Harmar Nicholls) The Bill is absolutely riddled with these difficulties.
What we propose is not a new principle. The Chief Secretary said that we were asking for something exceptional. We are not. I have in my hand Cmnd. 2347, A Scheme for an Accounts Basis for Income Tax on Company Profits, in which the principle raised by this Amendment is accepted. There is no question here of our trying to get around anything. What we are asking for has been accepted as a principle. I am sure that the right hon. Gentleman is aware of the White Paper to which I have referred which gives a perfectly clear instance covering a case of this kind.
No one can designate exactly when his business will cease. These cases are not limited to businesses ceasing in a prescribed number of years. It is montrous to suggest that there can be a terminal allowance if a business happens to cease in a certain period but not if it goes on for a longer period. I do not follow the logic of the Government's case. The right hon. Gentleman must be a little more specific if he is to have the good will of the Committee on this matter.

Sir John Hobson: I entirely agree with what has been said by my hon. Friends. This matter arose on Clause 75. Without doubt, there is an element of double taxation upon cessation where a company has until now been assessed on an Income Tax basis and then transfers to the Corporation Tax basis because, unless provision is made, the cessation arrangements to which it would now be entitled quite fairly under the Income Tax rules, because its starting year has been used at the first, second or, perhaps, even third year ought not to result, when it ceases trading, in its paying tax for an additional year beyond those in which it has been trading.
Last night, the right hon. Gentleman rejected the proposal that the cessation provisions for Income Tax should be taken forthwith because it involved difficulties in providing how tax should be dealt with immediately. The Government's proposal is that, provided one ceases to trade before the end of the year 1968–69, one can have the benefit, but, if one carries on after that, one cannot have what one is entitled to. Justice requires that the cessation provision should be available to those who cease to trade hereafter because they have transferred from the Income Tax to the Corporation Tax basis. Why should they, because they happen to carry on an extra few years beyond 1968–69, lose that benefit? This is another Clause which may well encourage small companies to become partnerships. They could then, provided that they did it before 1968–69, have the benefit of the cessation provisions under the Income Tax Act. It might or might not be worth it, but it will be an additional inducement to transfer from the limited liability basis to the partnership basis.

Mr. Joel Barnett: Does the right hon. and learned Gentleman have in mind the Finance Act which his right hon. Friend brought in under which the pre-penultimate year was introduced on the cessation of a business, which did away with much of the advantage of the previous cessation provision?

Sir J. Hobson: That is true, if there are fluctuating profits. Before that Act, by adjusting the rate of profits, taking a fluctuating rate, one could, if one ceased

trading at the right time, have a substantial advantage over taking the penultimate year. The matter has been evened out, of course.
The fact nevertheless remains that if a company has an accounting date very early in the financial year—and I suggested last night a company with 30th April—one could have nine months. Indeed, if one started one's trading on 6th April, one would have 364 days cessation provision. This can be a very substantial amount indeed.
The Clause impliedly admits that it is right that if a company ceases to trade in the first few years after 1966 it should have the benefit in equity and justice of the transfer. Suppose it had ceased to trade in 1966. Why should it be limited to a period with a tapering provision? Why should it not carry on? Many companies may have no benefit, but some may have very substantial benefit indeed, but they are losing it through the tapering provision. We are depriving them of what in right, justice and equity, they ought to have.
For these reasons, I cannot see why any transitional provisions are needed. If the proposed Amendments were adopted, one would in equity allow those companies that ceased to trade before 1968–69 to have precisely the same benefit as companies which ceased trade after 1968–69 would have.

Mr. Diamond: I do not wish to be discourteous to the Committee; but there is very little more that I can say. The facts are agreed. The right hon. and learned Gentleman has put his case absolutely fairly. The question is merely whether we shall carry on this small advantage—because one is talking about double taxation only in a particular year right at the start of the business when the profits may have been very small, possibly made 30 years ago—for all time, or have a temporary period, taper it off and finish with it. No one can say with certainly that a particular tapering period is the only one that one could possibly consider.
On the general principle about whether it should be carried on for all time as the right hon. and learned Gentleman suggests or, as the Government suggest, we should after a reasonable period get rid of it, the facts are absolutely agreed


between the two sides of the Committee, and the only question is what one should do about them. The Government take the view that it is right and proper that the provision should be brought to an end in due course.

Mr. Wingfield Digby: Once again the right hon. Gentleman is not very fair to the Committee. He has admitted that there is injustice here. It is inherent

in the Government's tax proposals. His answer is not a very satisfactory one. My right hon. and learned Friend put the case extraordinarily well and the right hon. Gentleman has completely failed to answer it. I feel disinclined to withdraw my Amendment.

Question put, That the words proposed to be left out stand part of the Clause:—

The Committee divided: Ayes 288, Noes 283.

Division No. 198.]
AYES
[10.29 p.m.


Abse, Leo
Duffy, Dr. A. E. P.
Jackson, Colin


Albu, Austen
Dunn, James A.
Janner, Sir Barnett


Allaun, Frank (Salford, E.)
Dunnett, Jack
Jeger, George (Goole)


Alldritt, Walter
Edelman, Maurice
Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)


Allen, Scholefield.(Crewe)
Edwards, Rt. Hn. Ness (Caerphilly)
Jenkins, Hugh (Putney)


Armstrong, Ernest
English, Michael
Jenkins, Rt. Hn. Roy (Stetchford)


Atkinson, Norman
Ennals, David
Johnson, Carol (Lewisham, S.)


Bacon, Miss Alice
Ensor, David
Jones, Dan (Burnley)


Bagier, Gordon A. T.
Evans, Albert (Islington, S.W.)
Jones, Rt.Hn.Sir Elwyn(W.Ham,S.)


Barnett, Joel
Evans, Ioan (Birmingham, Yardley)
Jones, J. Idwal (Wrexham)


Baxter, William
Fernyhough, E.
Jones, T. W. (Merioneth)


Beaney, Alan
Finch, Harold (Bedwellty)
Kelley, Richard


Bellenger, Rt. Hn. F. J.
Fitch, Alan (Wigan)
Kenyon, Clifford


Bence, Cyril
Fletcher, Sir Eric (Islington, E.)
Kerr, Mrs. Anne (R'ter &amp; Chatham)


Benn, Rt. Hn, Anthony Wedgwood
Fletcher, Ted (Darlington)
Kerr, Dr. David (W'worth, Central)


Bennett, J. (Glasgow, Bridgeton)
Fletcher, Raymond (Ilkeston)
Lawson, George


Binns, John
Floud, Bernard
Leadb[...]tter, Ted


Bishop, E. S.
Foley, Maurice
Ledger, Ron


Blackburn, F.
Foot, Michael (Ebbw Vale)
Lee, Rt. Hn. Frederick (Newton)


Blenkinsop, Arthur
Ford, Ben
Lee, Miss Jennie (Cannock)


Boardman, H.
Fraser, Rt. Hn. Tom (Hamilton)
Lever, Harold (Cheetham)


Boston, T. G.
Freeson, Reginald
Lewis, Arthur (West Ham, N.)


Bowden, Rt. Hn. W. (Leics S. W.)
Galpern, Sir Myer
Lewis, Ron (Carlisle)


Boyden, James
Garrett, W. E.
Lipton, Marcus


Braddock, Mrs. E. M.
Garrow, A.
Lomas, Kenneth


Bradley, Tom
George, Lady Megan Lloyd
Loughlin, Charles


Bray, Dr. Jeremy
Ginsburg, David
Mabon, Dr. J. Dickson


Broughton, Dr. A. D. D.
Gourlay, Harry
McBride, Neil


Brown, Rt. Hn. George (Belper)
Greenwood, Rt. Hn. Anthony
McCann, J.


Brown, Hugh D. (Glasgow, Provan)
Gregory, Arnold
MacColl, James


Brown, R. W. (Shoreditch &amp; Fbury)
Grey, Charles
MacDermot, Niall


Buchan, Norman (Renfrewshire, W.)
Griffiths, David (Rother Valley)
McGuire, Milchael


Buchanan, Richard
Griffiths, Rt. Hn. James (Llanelly)
McInnes, James


Butler, Herbert (Hackney, C.)
Griffiths, Will (M'chester, Exchange)
McKay, Mrs. Margaret


Butler, Mrs. Joyce (Wood Green)
Gunter, Rt. Hn. R. J.
Mackenzie, Gregor (Rutherglen)


Callaghan, Rt. Hn. James
Hale, Leslie
Mackie, John (Enfield, E.)


Carmichael, Neil
Hamilton, James (Bothwell)
McLeavy, Frank


Carter-Jones, Lewis
Hamilton, William (West Fife)
MacMillan, Malcolm


Castle, Rt. Hn. Barbara
Hamling, William (Woolwich, W.)
Mahon, Peter (Preston, S.)


Chapman, Donald
Hannan, William
Mahon, Simon (Bootle)


Coleman, Donald
Harrison, Walter (Wakefield)
Mallalieu,J.P.W.(Huddersfield,E.)


Conlan, Bernard
Hart, Mrs. Judith
Manuel, Archie


Corbet, Mrs. Freda
Hattersley, Roy
Mapp, Char[...]es


Cousins, Rt. Hn. Frank
Hazell, Bert
Marsh, Richard


Craddock, George (Bradford, S.)
Heffer, Eric S.
Mason, Roy


Crawshaw, Richard
Henderson, Rt. Hn. Arthur
Maxwell, Robert


Cronin, John
Herbison, Rt. Hn. Margaret
Mayhew, Christopher


Crosland, Rt. Hn. Anthony
Hill, J. (Midl[...]thian)
Mellish, Robert


Cullen, Mrs. Alice
Hobden, Dennis (Brighton, K'town.)
Mikardo, Ian


Dalyell, Tam
Holman, Percy
Millan, Bruce


Darling, George
Horner, John
Miller, Dr. M. S.


Davies, G. Elfed (Rhondda, E.)
Hough ton, Rt. Hn. Douglas
Milne, Edward (Blyth)


Davies, Harold (Leek)
Howarth, Harry (Wellingborough)
Molloy, William


Davies, Ifor (Gower)
Howarth, Robert L. (Bolton, E.)
Morris, Alfred (Wythenshawe)


Davies, S. O. (Merthyr)
Howell, Denis (Small Heath)
Morris, Charles (Openshaw)


de Freitas, Sir Geoffrey
Howie, w.
Morris, John (Aberavon)


Delargy, Hugh
Hoy, James
Murray, Albert


Dell, Edmund
Hughes, Emrys (S. Ayrshire)
Neal, Harold


Dempsey, James
Hughes, Hector (Aberdeen, N.)
Newens, Stan


Diamond, John
Hunter, Adam (Dunferml[...]ne)
Noel-Baker, Francis (Swindon)


Dodds, Norman
Hunter, A. E. (Feltham)
Noel-Baker,Rt.Hn.Phllip(Derby,S.)


Doig, Peter
Hynd, H. (Accrington)
Norwood, Christopher


Donnelly, Desmond
Irvine, A. J. (Edge Hill)
Oakes, Gordon


Driberg, Tom
Irving, Sydney (Dartford)
Ogden, Eric




Oram, Albert E. (E. Ham, S.)
Robinson, Rt. Hn.K.(St. Pancras, N.)
Thomas, Iorwerth (Rhondda, W.)


Orbach, Maurice
Rodgers, William (Stockton)
Thomson, George (Dundee, E.)


Orme, Stanley
Rogers, George (Kensington, N.)
Thornton, Ernest


Oswald, Thomas
Rote, Paul B.
Tinn, James


Owen, Will
Ross, Rt. Hn. William
Tomney, Frank


Padley, Walter
Sheldon, Robert
Tuck, Raphael


Page, Derek (King's Lynn)
Shinwell, Rt. Hn. E.
Urwin, T. W.


Paget, R. T.
Shore, Peter (Stepney)
Varley, Eric G.


Palmer, Arthur
Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Wainwright, Edwin


Pannell, Rt. Hn. Charles
Short, Mrs. Renée (W'hampton,N.E.)
Walden, Brian (All Saints)


Park, Trevor (Derbyshire, S.E.)
Silkin, John (Deptford)
Walker, Harold (Doncaster)


Parker, John
Silkin, S. C. (Camberwell, Dulwich)
Wallace, George


Parkin, B. T.
Silverman, Julius (Aston)
Warbey, William


Pavitt, Laurence
Silverman, Sydney (Nelson)
Watkins, Tudor


Pearson, Arthur (Pontypridd)
Skeffington, Arthur
Weitzman, David


Peart, Rt. Hn. Fred
Slater, Mrs. Harriet (Stoke, N.)
Wells, William (Walsall, N.)


Pentland, Norman
Slater, Joseph (Sedgefield)
White, Mrs. Eirene


Perry, Ernest G.
Small, William
Whitlock, William


Popplewell, Ernest
Smith, Ellis (Stoke, S.)
Wigg, Rt. Hn. George


Prentice, R. E.
Snow, Julian
Wilkins, W. A.


Price, J. T. (Westhoughton)
Soskice, Rt. Hn. Sir Frank
Willey, Rt. Hn. Frederick


Probert, Arthur
Spriggs, Leslie
Williams, Alan (Swansea, W.)


Pursey, Cmilr. Harry
Stonehouse, John
Williams, Clifford (Abertillery)


Randall, Harry
Stones, William
Williams, W. T. (Warrington)


Rankin, John
Strauss, Rt. Hn. G. R. (Vauxhall)
Willis, George (Edinburgh, E.)


Redhead, Edward
Stross,SirBarnett(Stoke-on-Trent,C.)
Wilson, William (Coventry, S.)


Rees, Merlyn
Summerskill, Hn. Or. Shirley
Winterbottom, R. E.


Reynolds, G. W.
Swain, Thomas
Wyatt, Woodrow


Rhodes, Geoffrey
Swingler, Stephen
Yates, Victor (Ladywood)


Richard, Ivor
Symonds, J. B.
Zilliacus, K.


Roberts, Albert (Normanton)
Taverne, Dick



Roberts, Goronwy (Caernarvon)
Taylor, Bernard (Mansfield)
TELLERS FOR THE NOES:


Robertson, John (Paisley)
Thomas, George (Cardiff, W.)
Mr. O'Malley and Mr Harper.




NOES


Agnew, Commander Sir peter
Chichester-Clark, R.
Gilmour, Ian (Norfolk, Central)


Alison, Michael (Barkston Ash)
Clark, Henry (Antrim, N.)
Gilmour, Sir John (East Fife)


Allan, Robert (Paddlngton, S.)
Clark, William (Nottingham, S.)
Glover, Sir Douglas


Allason, James (Hemel Hempstead)
Clarke, Brig. Terence (portsmth, W.)
Godber, Rt. Hn. J. B.


Amery, Rt. Hn. Julian
Cole, Norman
Goodhart, Philip


Anstruther-Gray, Rt. Hn. Sir W.
Cooke, Robert
Goodhew, Victor


Astor, John
Cooper-Key, Sir Neill
Gower, Raymond


Atkins, Humphrey
Cordle, John
Grant, Anthony


Awdry, Daniel
Corfield, F. V.
Gresham Cooke, R.


Baker, W. H. K.
Costain, A. P.
Grieve, Percy


Balniel, Lord
Courtney, Cdr. Anthony
Griffiths, Eldon (Bury St. Edmunds)


Barber, Rt. Hn. Anthony
Craddock, Sir Beresford (Spelthorne)
Griffiths, Peter (Smethwick)


Barlow, Sir John
Crawley, Aidan
Gurden, Harold


Batsford, Brian
Crosthwaite-Eyre, Col. Sir Oliver
Hall, John (Wycombe)


Beamish, Col. Sir Tufton
Crowder, F. P.
Hall-Davis, A. G. F.


Bell, Ronald
Cunningham, Sir Knox
Hamilton, Marquess of (Fermanagh)


Bennett, Sir Frederic (Torquay)
Curran, Charles
Hamilton, M. (Salisbury)


Bennett, Dr. Reginald (Got &amp; Fhm)
Currle, C. B. H.
Harris, Frederic (Croydon, N.W.)


Berkeley, Humphry
Dalkeith, Earl of
Harris, Reader (Heston)


Berry, Hn. Anthony
Dance, James
Harrison, Brian (Maldon)


Bessell, Peter
Davies, Dr. Wyndham (Perry Barr)
Harrison, Col. Sir Harwood (Eye)


Biff en, John
d'Avigdor-Goldsmid, Sir Henry
Harvey, John (Walthamstow, E.)


Biggs-Davison, John
Dean, Paul
Harvie Anderson, Mist


Bingham, R. M.
Deedes, Rt. Hn. W. F.
Hastings, Stephen


Birch, Rt. Hn. Nigel
Dlgby, Simon Wingfield
Hawkins, Paul


Black, Sir Cyril
Dodds-Parker, Douglas
Hay, John


Blaker, Peter
Doughty, Charles
Heald, Rt. Hn. Sir Lionel


Bossom, Hn. Clive
Dray son, G. B.
Heath, Rt. Hn. Edward


Bowen, Roderic (Cardigan)
du Cann, Rt. Hn. Edward
Hendry, Forbes


Box, Donald
Eden, Sir John
Higgins, Terence L.


Boyd-Carpenter, Rt. Hn. J.
Elliot, Capt. Walter (Carshalton)
Hill, J. E. B. (S. Norfolk)


Braine, Bernard
Elliott, R. W.(N'c'tle-upon-Tyne,N.)
Hirst, Geoffrey


Brewis, John
Emery, Peter
Hobson, Rt. Hn. Sir John


Brinton, Sir Tatton
Errington, Sir Eric
Hogg, Rt. Hn. Quintin


Brooke, Rt. Hn. Henry
Eyre, Reginald
Hooton, H. E.


Brown, Sir Edward (Bath)
Farr, John
Hopkins, Alan


Bruce-Gardyne, J.
Fell, Anthony
Hordern, Peter


Bryan, Paul
Fisher, Nigel
Hornsby-Smith, Rt. Hn. Dame P.


Buck, Antony
Fletcher-Cooke, Charles (Darwen)
Howard, Hn. G. R. (St. Ives)


Bullus, Sir Eric
Fletcher-Cooke, Sir John (S'pton)
Hunt, John (Bromley)


Burden, F. A.
Foster, Sir John
Hutchison, Michael Clark


Butcher, Sir Herbert
Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)
Iremonger, T. L.


Button, Ronald
Fraser, Ian (Plymouth, Sutton)
Irvine, Bryant Godman (Rye)


Campbell, Gordon
Galbraith, Hn. T. G. D.
Jenkin, Patrick (Woodford)


Carlisle, Mark
Gammans, Lady
Jennings, J. C.


Cary, Sir Robert
Gardner, Edward
Johnston, Russell (Inverness)


Channon, H. P. G.
Gibson-Watt, David
Jones, Arthur (Northants, S.)


Chataway, Christopher
Giles, Rear-Admiral Morgan
Joseph, Rt. Hn. Sir Keith







Kaberry, Sir Donald
Murton, Oscar
Steel, David (Roxburgh)


Kerr, Sir Hamilton (Cambridge)
Neave, Airey
Stodart, Anthony


Kershaw, Anthony
Nicholls, Sir Harmar
Stoddart-Scott, Col. Sir Malcolm


Kilfedder, James A.
Nicholson, Sir Godfrey
Studholme, Sir Henry


Kimball, Marcus
Noble, Rt. Hn. Michael
Talbot, John E.


King, Evelyn (Dorset, S.)
Nugent, Rt. Hn. Sir Richard
Taylor, Sir Charles (Eastbourne)


Kirk, Peter
Onslow, Cranley
Taylor, Edward M. (G'gow,Cathcart)


Lagden, Godfrey
Orr, Capt. L. P. S.
Taylor, Frank (Moss Side)


Lancaster, Col. C. G.
Orr-Ewing, Sir Ian
Teeling, Sir William


Langford-Holt, Sir John
Osborn, John (Hallam)
Temple, John M.


Legge-Bourke, Sir Harry
Osborne, Sir Cyril (Louth)
Thatcher, Mrs. Margaret


Lewis, Kenneth (Rutland)
Page, John (Harrow, W.)



Litchfield, Capt. John
Page, R. Graham (Crosby)
Thomas, Sir Leslie (Canterbury)


Lloyd, Rt.Hn.Geoffrey(Sut'nC'dfield)
Pearson, Sir Frank (Clitheroe)
Thomas, Rt. Hn. Peter (Conway)


Lloyd, Ian (P'tsm'th, Langstone)
Peel, John
Thompson, Sir Richard (Croydon, S.)


Lloyd, Rt. Hn. Selwyn (Wirral)
Percival, Ian
Thorneycroft, Rt. Hn. Peter


Longden, Gilbert
Peyton, John
Tiley, Arthur (Bradford, W.)


Loveys, Walter H.
Pickthorn, Rt. Hn. Sir Kenneth
Tilney, John (Wavertree)


Lubbock, Eric
Pike, Miss Mervyn
Turton, Rt, Hn. R. H.


Lucas, Sir Jocelyn
Pitt, Dame Edith
Tweedsmuir, Lady


McAdden, Sir Stephen
Pounder, Rafton
van Straubenzee, W. R.


MacArthur, Ian
Powell, Rt. Hn. J. Enoch
Vaughan-Morgan, Rt. Hn. Sir John


Mackenzie, Alasdair (Ross&amp;Crom'ty)
Price, David (Eastleigh)
Vickers, Dame Joan


Mackie, George Y. (C'ness &amp; S'land)
Prior, J. M. L.
Walder, David (High Peak)


McLaren, Martin
Quennell, Miss J. M.
Walker, Peter (Worcester)


Maclean, Sir Fitzroy
Ramsden, Rt. Hn. James
Walker-Smith, Rt. Hn. Sir Derek


Macleod, Rt. Hn. Iain
Rawlinson, Rt. Hn. Sir Peter
Wall, Patrick


McMaster, Stanley
Redmayne, Rt. Hn. Sir Martin
Walters, Dennis


McNair-Wilson, Patrick
Rees-Davies, W, R.
Ward, Dame Irene


Maginnis, John E.
Renton, Rt. Hn. Sir David
Weatherill, Bernard


Maitland, Sir John
Ridley, Hn. Nicholas
Webster, David


Marples, Rt. Hn. Ernest
Ridsdale, Julian
Wells, John (Maidstone)


Marten, Neil
Roberts, Sir Peter (Heeley)
Whitelaw, William


Mathew, Robert
Robson Brown, Sir William
Williams, Sir Rolf Dudley (Exeter)


Maude, Angus
Rodgers, Sir John (Sevenoaks)
Wills, Sir Gerald (Bridgwater)


Mawby, Ray
Roots, William
Wilson, Geoffrey (Truro)


Maxwell-Hyslop, R. J.
Royle, Anthony
Wise, A. R.


Maydon, Lt.-Cmdr. S. L. C.
St. John-Stevas, Norman
Wolrige-Gordon, Patrick


Meyer, Sir Anthony
Scott-Hopkins, James
Wood, Rt. Hn. Richard


Mills, Peter (Torrington)
Sharples, Richard
Woodhouse, Hon. Christopher


Mills, Stratton (Belfast, N.)
Shepherd, William
Woodnutt, Mark


Miscampbell, Norman
Sinclair, Sir George
Wylie, N. R.


Mitchell, David
Smith, Dudley (Br'ntf'd &amp; Chiswick)
Yates, William (The Wrekin)


Monro, Hector
Smyth, Rt. Hn. Brig. Sir John
Younger, Hn. George


More, Jasper
Spearman, Sir Alexander



Morrison, Charles (Devizes)
Speir, Sir Rupert
TELLERS FOR THE NOES:


Mott-Radclyffe, Sir Charles
Stainton, Keith
Mr. Pym and Mr. G. Johnson Smith.


Munro-Lucas-Tooth, Sir Hugh
Stanley, Hn. Richard

Clause ordered to stand part of the Bill.

Clause 82.—(CONSEQUENTIAL AMENDMENTS OF ESTATE DUTY.)

Question proposed, That the Clause stand part of the Bill.

Mr. Barber: There are two questions I would like to put to the right hon. Gentleman the Minister without Portfolio about this Clause. This Clause amends what is Part 4 of the Finance Act, 1940, under which Estate Duty is payable in respect of a company and the Estate Duty is imposed on an assets basis. This is effected by reference to the company's net income. In the past that income has been determined on Income Tax principles but in future it will be determined on Corporation Tax principles. This is obviously different otherwise there would be no point in having these provisions.
The first question I want to ask is what will be the effect of this change, in the generality of cases, on the quantum of Estate Duty which will be payable under Part 4 of the 1940 Act. Is the Estate Duty likely to increase or decrease, or is the purpose here simply one of convenience for the company, which will in future be computing its tax liability on Corporation Tax principles for all purposes? The second question is this. The Chancellor considers it necessary to have an extended definition of a close company, bringing many more companies within the ambit of the close company provisions. Why does the right hon. Gentleman consider that the old definition under Section 245 procedure is adequate for the purposes of Part4 of the 1940 Act but not for other taxation purposes?

Sir Eric Fletcher: It is difficult to estimate what the position would be, and I am afraid I cannot give the right hon. Gentleman the Member for Altrincham and Sale (Mr. Barber) any further information. The object of this somewhat complicated Clause is to try to conserve the position as it is under the Estate Duty provisions in the Finance Act, 1940, and is intended to carry forward into the Corporation Tax scheme the provisions of Section 46 of the Finance Act, 1940, which was introduced as an anti-avoidance measure, designed to meet

cases where a person who has transferred property to a company controlled by five or fewer persons and has enjoyed, or has power to enjoy, any of the income or assets of the company during the five years preceding his death, then arranges his affairs so that no adequate element of capital becomes chargeable for Estate Duty.

Mr. Barber: Obviously there will be some difference in liability to Estate Duty under this provision as compared with the existing provisions, because in future the net income of the company will be computed on Corporation Tax principles whereas hitherto it has been computed on Income Tax principles. This is bound to make some difference and all I wanted to know was how much in total was involved and whether it is likely to involve a decrease in liability to Estate Duty or an increase, or whether it is purely a changeover in order to make life simpler for those people concerned with companies which in future will only be concerned with computation on Corporation Tax principles.
10.45 p.m.
The second question, which is important and I should like an answer to it, arises from subsection (5), which reads:
Nothing in this Part of this Act or in the repeals consequential thereon shall effect the operation of Section 58(1) of the Finance Act 1940.…
The Chancellor of the Exchequer has decided in his wisdom—and we on this side of the Committee are opposed to it—to bring in all kinds of public companies within the definition of a close company for a variety of taxation reasons. As the companies with which the Clause is concerned are companies as defined for the purposes of Section 245 of the 1952 Act, one would have thought that the right hon. Gentleman would have changed over to the new definition of close companies. But he is specifically preserving the old definition for this purpose. There must be some very good reason for this, but it is odd, and it has troubled one or two of my hon. Friends apart from myself. We cannot understand why this has been done.

Mr. Patrick Jenkin: I reinforce the remarks of my right hon. Friend the Member for Altrincham and Sale (Mr. Barber). The jungle of tax legislation


through which the directors of companies that fall broadly within this net have to steer is very tangled. Questions of whether they are close companies and come under the definition in Schedule 17, whether they are director-controlled companies or Surtax companies under the old Section 245 are very difficult to determine. It must add to the complications of life for these companies that they should come into two different taxation systems, namely, the Estate Duty system and the Corporation Tax system.
If the Government insist that even companies which have a substantial public shareholding are, nevertheless, to be regarded as close companies, I can well understand that it would be inappropriate that those companies should fall within the provisions of Sections 46 and 55 of the Finance Act, 1940. But this would seem to me to be a reason not for having two different definitions, but for modifying the definition of a close company for the purposes of the Bill so that the same definition could conveniently apply both for Estate Duty purposes and for tax purposes. This would produce some measure of simplification which the Chief Secretary has never been tired of telling us is one of the great virtues of the Bill. This Clause is an indication of the measure of the absence of simplicity and of a duplication of definition which will make life more difficult.
I hope that the Government, even if they insist on maintaining public companies within the close company net, will consider doing something in future to harmonise these two provisions.

Sir Eric Fletcher: To revert to the first question which the right hon. Member for Altrincham and Sale (Mr. Barber) asked, it is impossible to see what the precise result will be until some specific cases arise for the attention of the Estate Duty Department. But the intention is that as little change as possible should be produced.
The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) referred to this anti-avoidance legislation as a jungle. No one disputes that it is complicated, but the ingenuity of those who try to avoid paying tax is so great that it is inevitable that it should be complicated. What we seek to do by subsec-

tion (5) is to retain for Estate Duty purposes the existing definition of a close company.
The hon. Member said that it is inconvenient that there should be two definitions. On balance, it might be said to be more convenient that the existing definition of a close company for Estate Duty purposes should be retained. It is a balance of argument which is more convenient. We consider it unnecessary, as indeed it is, to change the definition of a close company for purposes of Estate Duty under the Finance Act. That is why subsection (5) is included. I think that on balance this will be found to be more convenient.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 83.—(INTERPRETATION OF PART IV.)

Sir Eric Fletcher: I beg to move Amendment No. 617, in page 113, line 39, at the end, to insert:
(b) "preference dividend" means a dividend payable on a preferred share or preferred stock at a fixed gross rate per cent. or. where a dividend is payable on a preferred share or preferred stock partly at a fixed gross rate per cent. and partly at a variable rate, such part of that dividend as is payable at a fixed gross rate per cent., but it does not include any divident or part of a dividend which is paid without deduction of income tax (and for this purpose a payment shall be treated as made without deduction of income tax unless either there is made from it the full deduction authorised by this Part of this Act or the payment is, before the passing of an Act imposing income tax for the year of assessment, made subject to deduction of tax by reference to a standard rate less than that ultimately imposed).
This is, in a sense, a consequential Amendment. It introduces a definition of "preference dividend".

Amendment agreed to.

Mr. John M. Temple: I beg to move Amendment No. 350, in page 114, line 10, at the end, to insert:
(k) "a registered industrial and provident society "shall also include references to a co-operative type of company whose constitution conforms with regulations made under the Agricultural and Forestry Associations Act, 1962.
This is a fairly readily comprehensible Amendment, and I can only hope that it is in the right place in the Bill. [Interruption.] I have been shot down on these


points before. The object of the Amendment is to extend the benefits of the Corporation Tax advantages which have been given to co-operative societies which have been registered under the Industrial and Provident Societies Acts to co-operative societies which have been formed under the Agricultural and Forestry Associations Act, 1962.
My friend the President of the National Farmers' Union wrote to the Chancellor of the Exchequer about this matter on 18th May and had a rather cryptic reply saying that the Chancellor was looking into the matter and that it would be discussed on the Amendment of the hon. Member for the City of Chester. The appropriate moment has now arrived when the Amendment can be discussed.
I believe that it is an omission on the part of the Government not to have included co-operative societies formed under the Agricultural and Forestry Associations Act, 1962, in the same bracket as co-operative societies which were formed under previous legislation. Clauses 43(5) and 65, taken together, exempt from Corporation Tax a registered industrial and provident society formed under the Act of 1870.
Since that time there have been new definitions of registered provident societies for the purpose of agriculture under the 1962 Act and a convenient definition of these societies was given in S.I. 1892/62. These new forms of societies have been doing a first-class job. They have been working largely in cooperation with the Agricultural Market Development Executive Committee, normally known in agricultural circles as A.M.D.E.C. My right hon. Friend the Member for Guildford (Sir R. Nugent) is the chairman of the executive committee of that organisation. Significantly, the Government have extended the powers of A.M.D.E.C. under the Price Review for a further three years. It would, therefore, seem that the Government are in full support of all the schemes sponsored by A.M.D.E.C., many of which are sponsored by co-operative societies which have been formed under the 1962 legislation.
I would refer, only very briefly, to a pamphlet giving the objectives of A..M.D.E.C. They are to encourage with grants schemes for market research,

schemes for the promotion of grading and standardisation, and better presentation of agricultural products. I know that these are matters which are very much encouraged by the present Minister of Agriculture. I have heard him speak on many occasions, and he is extraordinarily keen on promoting marketing of agricultural products of all kinds. I would just quote from this pamphlet to give some idea of the scope of the type of company to which I am referring. It says that the purposes for which grants should be payable are the promotion of business efficiency, and then, most important, it says:
To be eligible for grant an existing organisation will have to provide evidence that it is in substance a co-operative association or that it is registered under the Companies Acts and is effectively under the control of its producer members, with no one member commanding more than one-tenth of the voting power and with profits shared approximately in proportion to the business done.
That sets out clearly the definition of a co-operative under the 1962 definition.
I can see no case whatever in logic why these differently formed types of co-operative society, all of which are to assist agriculture, should be treated differently for Corporation Tax. That is the essence of the point, and I hope very much that the Government will accept this Amendment and be able to put the matter right more or less immediately.

Sir Richard Nugent: May I say a brief word in support of my hon. Friend the Member for the City of Chester (Mr. Temple). The point here is that these A.M.D.E.C. grants have been made equally to companies registered under the Industrial and Provident Societies Acts and to full-blooded agricultural societies, and, where we are satisfied that a company is formed in such a fashion, we have made grants exactly the same, as though they were co-operative societies. I am sure the Treasury Ministers will see that this is in the spirit of the original A.M.D.E.C. intention, which has been carried on by this Government. I hope that Treasury Ministers will be willing to accept my hon. Friend's Amendment.

Sir Eric Fletcher: There is no dispute between the two sides of the Committee about this matter. There has been discussion between my right hon. Friends


the Chancellor and the Minister of Agriculture, and it is perfectly true that, as the hon. Member indicated, the Government fully recognise the very valuable and important work which is being done by farmers' co-operative companies in the development of agricultural co-operative activities, and we are anxious to see that no avoidable obstacle is put in the way of further development of the co-operative activity in one form or another which is going on among farmers. Therefore, I am authorised to say the Government are disposed to accept the principle of the Amendment. I can assure the hon. Member for the City of Chester (Mr. Temple) that he has chosen the right place in the Bill to make the Amendment—this Clause, the Interpretation Clause.
I cannot accept the precise form of words suggested by the hon. Member because I am not sure that it would be suitable for his purpose, and I think it may be undesirable, in the interests of both the farmers themselves and of the Revenue, to tie the special treatment proposed so closely to the Agricultural and Forestry Associations Act, 1962, but I can assure the hon. Member that if he will withdraw his Amendment my right hon. Friend undertakes to produce a suitable Amendment on Report.

Mr. Temple: I am sure the whole Committee is obliged to the Minister without Portfolio. I am exceedingly pleased to have made yet another dent in the Finance Bill—three out of five attempts, which means that I am scoring a high percentage. I understand that the Minister cannot accept our drafting and that he will put this matter right on Report. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

11.0 p.m.

Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. William Clark: I will not detain the Committee for any length of time, but will the Minister explain why the Government have chosen in subsection (2,e) to advance the period by five days? Normally the fiscal year starts on 5th April, but in this case it starts on 1st April, 1965. It must have been a printing error. No doubt the matter can be

put right on Report—unless there is some valid reason why the financial year for 1965 should start on 1st April. It would be at variance with all other Income Tax Acts.

Sir Eric Fletcher: I am under the impression that it is intended to start on 1st April, 1965, but I will look into the matter and, if necessary, I will let the hon. Member for Nottingham, South (Mr. William Clark) know. My impression is that this is intentional.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Schedule 10.—(MEANING OF "DISTRIBUTION".)

Mr. Peyton: I beg to move, Amendment No. 685, in page 170, line 24, to leave out from the second "the" to the end of line 28 and to insert:
former is a subsidiary of the latter or both are subsidiaries of a third company ('subsidiary' having the meaning assigned to it by section 42 (1) of the Finance Act 1938)".
The effect of the Schedule as drafted is to treat the payment of interest under quite legitimate and sound commercial transactions as if it could be in the furtherance of some tax dodging device. Many such arrangements exist, as Treasury Ministers know, and many of them exist with specific Treasury approval. Because I cannot bring myself to believe that it is the Government's intention to interfere with such processes, I move the Amendment as briefly as this in the confident hope that the Chief Secretary will accept it.

Mr. Diamond: The point is well made, it is fully taken and the Amendment is accepted.

Mr. Peyton: I am very nearly overwhelmed. I only wish that the Chief Secretary had been on the Front Bench a little earlier this afternoon. I could have wished him here on at least one occasion. I am grateful for what he has done, I am glad to see him here and I hope to face him on many more occasions with similar results. I am very much obliged.

Amendment agreed to.

Mr. Diamond: I beg to move Amendment No. 693, in page 172, line 34, to leave out from "company" to "a" in line 36 and to insert:
to a director who is not a whole-time service director but is".

The Deputy-Chairman (Sir Samuel Storey): With this Amendment the Committee should also discuss the following: Amendment No. 576, in page 172, line 33, at the beginning to insert "so much of".
Amendment No. 577, in page 172, line 33, after "consideration", to insert:
as represents more than a reasonable commercial rate".

Mr. Diamond: The effect of the Amendment and the other two which go with it, Nos. 694 and 695, is that loan interest payable by a close company will be treated now in much the same way as loan interest is treated for Profits Tax purposes, that is to say, it will be allowed as a deduction in computing the company's profits for Corporation Tax purposes unless either it is payable at more than a reasonable commercial rate or it is payable to a director or to an associate of a director. When I refer to a director of a company, I exclude the whole-time service director. A whole-time service director counts in this case, as in other cases, just as an employee, and there is no limitation therefore in respect of interest paid to him.
This is a relaxation of the previous tax avoidance provisions contained in the Clause. Representations have been made to my right hon. Friend that the previous provisions disallowing loan interest paid by close companies were rather widely drawn, and we now therefore adopt in their place the provisions which are drawn from Profits Tax and which have worked well there.
It will be readily seen that my right hon. Friend has gone a very long way indeed to meet the representations which have been made, and of course it will cause the Committee some anxiety, because no right hon. or hon. Member on either side of the Committee is anxious that the Chancellor should go so far as to encourage any possibility of tax avoidance. We recognise this anxiety on both sides of the Committee, and my right hon. Friend therefore will be careful to watch the effect of the proposed Amend-

ment, if the Committee is good enough to accept it, during the course of the coming year.
If we have gone too far, and have left some scope for avoidance, appropriate counter-measures will have to be taken, but in the confident belief that the previous draft was perhaps a little harsh, and that although this may be a little too lenient, those who are concerned, the directors of close companies, will respect the leniency and make the thing work comfortably and conveniently, I think that my right hon. Friend is perhaps not going too far.

Mr. W.R. van Straubenzee: We have moved on to a part of Schedule 10 which has important ramifications, and I hope that I shall be forgiven if I take a minute or two to say something about the other two Amendments which are being discussed with this one.
The provisions which the Government are now doing a considerable amount to amend were among the provisions which, when first published, caused widespread anxiety among the directors of close companies. This is but one further example of a retreat on an important point to do with the provisions for close companies which I do not think would have been necessary if the provisions had been properly thought out in the first place.
The combined effect of these Amendments could also have been secured by accepting the Opposition Amendment No. 474 to Schedule 17, which we shall be discussing at a later stage. I merely place this on record as something on which we on this side of the Committee worked at an early stage.
The position is still that interest paid to directors or their associates is caught by the provisions of the Bill. Let me illustrate the sort of case that will still be caught. A director has associates as defined by the Bill. As we know, associates can be relations—for example, if his children are beneficiaries of a trust. The associate has accumulated savings which are on ordinary deposit at 5 per cent. The company, on the other hand, has a secured bank overdraft on which it is paying 8 per cent. It would be an ordinary sensible business transaction for the associate to lend the company money at some rate less than 8 per cent. It


would be beneficial to all concerned, it would be a commercial transaction, and that is why, Sir Samuel, the Amendments which you have been good enough to say we may discuss with this one imports an element of reasonable commercial consideration. That was the reason for their being drafted in that form.
It must equally be said in fairness from this side of the Committee that, of course, the Revenue must have powers in this respect, because it is perfectly conceded that a number of these transactions are not at arm's length. But the effect of the Clause, even improved as it is, is to penalise all such transactions with directors even if entered into under contract before the publication of this Bill.
For these reasons, while I appreciate that it is not open to this side of the Committee to press our two Amendments by way of Division because you are not calling them for that purpose, Sir Samuel, we had to spend a moment to explain them.

Mr. Patrick Jenkin: I would like to add briefly to what my hon. Friend has said about this. As he rightly emphasised, paragraph 9 of Schedule 10, taken with the definition of the participator in Schedule 17, which includes the loan creditor, can operate as a very severe penalty on close companies who borrow money, let us say, from members of the family. If the loan is allowed for Corporation Tax purposes,£100 of interest gross cost£100 of profits. If the loan is disallowed—and as the Bill now stands it will be—with a 35 per cent. rate of Corporation Tax that loan interest will cost£153 16s. 11d., and if the Corporation Tax is at 40 per cent. the cost to the company of a loan interest of£100 will be£166 13s. 4d.
This is a very swingeing penalty, and the objection to it is that in order to try to catch—quite laudably—the tax fiddler, the man who tries to take advantage of the procedure, all sorts of entirely reputable and sensible transactions are going to be swept into the net and penalties of this magnitude imposed.
My hon. Friend gave one example. Let me give another—the young man who is a director of a small family company who sees the need for extra finance. He is

unable to interest any financial institution, and he goes to uncle. Uncle, who is a ruthless self-made businessman, demands his pound of flesh but is willing to back the young man and lends the money at a commercial rate of interest in order to give the young man the chance of expanding his business. The whole of that interest, because he is an associate, a director, will be disallowed, and the business will accordingly be penalised.
The Amendments which we had set down would, in these circumstances, have allowed the interest up to a reasonable commercial rate to be treated as a deduction and not as a distribution to a participator. This does seem to me to be a very necessary modification to this Bill, and I hope the Chief Secretary will be able to offer some hope that between now and Report stage he will examine this problem again, because it can give rise to considerable hardship.
The Chief Secretary was good enough in yesterday's debate to acknowledge the concern these provisions had aroused, but none has aroused greater concern than this and his Amendment only goes a very small way towards alleviating the position.

11.15 p.m.

Mr. Stratton Mills: The Chief Secretary has been good enough to look with some flexibility at this point, but I am not convinced that the Government Amendment is entirely satisfactory. Like my hon. Friends, I would much prefer to see a test based on reasonably commercial considerations. One anomaly has been created by the Amendment. If a young man starting in business obtains a loan of£10,000 at a rate of 10 per cent. from someone who is not related to him in any way, if the lender puts his accountant on the board the interest is allowable for Corporation Tax, but if the lender himself sits on the board the interest is not so allowable, and instead of the interest being£1,000 per annum it will be£1,538 9s. I do not think that this is the kind of situation which the Treasury Bench envisaged, and I hope that it will be possible to put the matter right with a later Amendment.

Sir Lionel Heald: There is one other anomaly. As I understand it, the Amendment would have the effect of applying to a person who is an associate


of a director. The word "associate" is defined an page 210, in the Seventeenth Schedule, as
husband or wife, parent or remoter forebear, child or remoter issue, brother or sister, and partner".
The right hon. Gentleman has said that there was no possibility of evasion, but if the associate of such a director happened to be his mistress that would apparently give ample provision for evasion.

Mr. Diamond: This confirms what I said previously—that both sides of the Committee are anxious that there should not be tax avoidance. I am grateful to the right hon. and learned Member for Chertsey (Sir L. Heald) for pointing out the possibility of evasion, and I readily undertake to consider the point that he has raised.
As to the other points raised, by the hon. Member for Wokingham (Mr. van Straubenzee), the hon. Member for Belfast, North (Mr. Stratton Mills) and the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin), their judgment is one of a number of hon. and right hon. Members who are not accustomed to tax avoidance, and although the hon. Member for Wokingham was good enough to admit that there is a possibility of tax avoidance here, and that the Revenue must be reasonably protected, it is right to point out that one's judgment varies according to whether one is concerned with this point. The right hon. Member for Bexley (Mr. Heath) takes the view that we are obsessed with this matter; we take the view that we have to protect the Revenue and see that each taxpayer bears his fair share of taxation.
It is merely a matter of how far one should go. There is no dispute between the two sides. If we go completely to the extent of preventing tax avoidance there will be some bona fide hard cases, but if we go completely the other way we open the door to tax avoidance. We have to arrive at a reasonably half-way house.

Mr. Patrick Jenkin: What is the objection to allowing the first slice of interest, up to a reasonably commercial rate, in all these cases?

Mr. Diamond: The objection is that if this is, in effect, a return on capital it

should be treated as a return on capital. That is the position we have to protect. Had we been continuing Profits Tax in its present form the loophole of the associate would have been a matter that we should have had to deal with, in any event. Tax avoidance does arise, and therefore we have to deal with it. My right hon. Friend has gone a long way; everybody recognises this. He has gone as far as he should be asked to go. My interest is the reverse of the hon. Member's; my view is that there will be more cases of tax avoidance than bona fide hard cases.
In short, I will as a matter of courtesy, but not in any other sense, look at the suggestion which hon. Members have made. I must tell them in all fairness that it has already been considered, but I will take into account the representations they have put; although I think that the Amendment I have urged on behalf of my right hon. Friend meets all the reasonable cases. I will look at their point between now and Report stage with the qualification I have made clear.

Amendment agreed to.

Further Amendments made: In page 172, line 37, at end insert:
or to a person who is an associate of such a director".

In page 173, to leave out lines 24 to 28.—[Mr. Diamond.]

Mr. Diamond: I beg to move Amendment No. 717, in page 173, line 34, to leave out from beginning to "as" in line 35.
This Amendment corrects a drafting error whereby there is a choice of two alternatives in the Bill. One course, we think, is sufficient.

Amendment agreed to.

Sir John Hobson: I beg to move Amendment No. 653, in page 173, line 41, at the end to add:

PART III

10.—(1) This paragraph shall apply—

(a) where any shares in a company which have passed on the death of any person, have on that death been valued for the purposes of estate duty in accordance with the provisions of section 55 of the Finance Act 1940, and


(b) where the assets of a company have to any extent been deemed for the purposes of estate duty to be included in the property passing on the death of any person under section 46 of the Finance Act 1940.

(2) Notwithstanding anything elsewhere in this Act contained any estate duty (other that estate duty the cost whereof falls on the company) paid in respect of any such death as aforesaid shall in so far as the same is attributable to assets (or the value of assets) of the company which may at any time after such death fall to be treated as a distribution under the foregoing provisions of this Schedule, shall be treated as new consideration.
(3) Where any payment of estate duty is treated as new consideration under the foregoing sub-paragraph, the new consideration shall be treated as given to and received by the company at such time and in consideration for such issue of share capital or securities or such transfer of assets as the person or persons on whom the cost thereof falls shall at any time within 10 years after the said death by notice in writing given to the Board elect.

This Amendment deals with the position of liability to tax which arises after death in having an assessment made on an assets basis valuation under Section 55 of the Finance Act, 1940, where allowance is made for the liabilities of a company with a few minor exceptions. Among the allowances made are contingent liabilities which have to be valued by such estimates as appear reasonable to the Commissioners.

The treatment of tax liabilities over this period which are likely to be incurred but which have not crytallised are governed by the ordinary tax liability which a company may incur under Section 30(3) of the Finance Act, 1954. This Section provides that, for the purpose of assessing contingent liabilities, any liability of the company arising, or which may arise, after the death of a person for taxation under the income or profits tax headings, shall be taken into account as if it was the
…actual but contingent liability at the date of the death, in so far as the liability…
is attributable to income or profit accruing before death.

I emphasise those words, because it is only the income arising before death with which we are concerned, and it is only with minor exceptions that this can be taken into account and where the liability arising after death can be considered only in so far as the after-death profits are un

likely to be sufficient to meet the amount of the taxation. Therefore, there is a very restrictive Clause, which makes it unusual and exceptional that anybody should take into account, in reducing the assets of the company for these purposes, the liability in respect of taxation on income or profits arising after death. With the new Corporation Tax, retained profits will all be contingently liable to Income Tax, but that liability arises only if and when distributions are made. I am advised, and I think that it is correct, that Section 30(3) of the Finance Act, 1954, provides no relief at all for this tax liability.

Section 30(3) deals only with the income or profits of the company, and the liability in question is not a tax on the income or profits. Whether one takes the distinction before or after death, this liability is not a liability on the income or profits of the company. It is a liability only on the distributions. It may well arise—and almost certainly will—after death, if profits have been retained. The tax, therefore, on post-death distributions which give rise to the liability is not referable to income or profits arising before death, and therefore cannot be taken into account under Section 30(3) of the Finance Act, 1954.

Therefore, the Amendment is designed to cover the inequity which will result if the reserves in the company, undistributed profits, are, first of all, to be subject to Estate Duty payable in respect of the shares when the death occurs, and, subsequently, are to attract Income Tax, because that will be a liability which will arise on distribution after death. Therefore, those reserves will have been taxed to Estate Duty in the hands of the deceased and, if and when they are distributed, they will bear the full burden of the new Schedule F tax. The Amendment is designed to avoid disturbing the present basis of valuation under Sections 55 and 46. It is intended to ensure that the person who pays the duty attributable to the retained profits under the new Schedule F should be treated as paying a new consideration to the company for the purposes of paragraph 4 of this Schedule. The new consideration will be the amount of the duty attributable to the reserves.

The effect of that, of course, is that an amount equivalent to the duty which has already been paid in estate duty in respect of those retained profits should subsequently be taken from the company without incurring Income Tax liability on the amount so taken, as though it was a distribution. As an example, when A dies possessed of all the shares in a company and a proportion of the company's assets represents retained profits, on which assets his executors have to pay£5,000 in Estate Duty, if a bonus issue is made and subsequently redeemed or paid off, the first£5,000 of the redemption or payment off will not be treated as distributions under Schedule 10, but the balance of the£5,000 which has not already been taken by the Revenue as Estate Duty representing those retained profits will bear the ordinary Schedule F tax upon the distribution which is made.

It seems to me that, unless this arrangement, or—if the Chief Secretary wants time to consider it—some other arrangement is made, there may be a considerable inequity in the fact that people will have had what represents the retained profits or a proportion of them taken from them and, when they distribute them, tax will he paid on them again. This is a point which the Amendment would deal with satisfactorily, leaving the basis of valuation for Estate Duty undisturbed and producing equity between the taxpayer and the Revenue in the situation when Estate Duty has already been paid as an assessed value on death.

I hope, therefore, that the Chief Secretary will be able to accept at least the principle of the Amendment or assure us that he will consider it sympathetically and put down what best he can at a later at age.

11.30 p.m.

Mr. Diamond: The right hon. and learned Member for Warwick and Leamington (Sir J. Hobson) has raised a point which requires very careful consideration. The Amendment put down, which has been most carefully examined, did not on the face of it raise all the points which he has explained; and it was not possible, therefore, to give full consideration to what he has had to say; and I should like to do that. One cannot go further than to say that one would like to consider it very carefully.
There are various defects in the Amendment as drafted which it would be a waste of time to go into now. It has one or two effects which the right hon. and learned Gentleman did not refer to in his speech—I do not think they could have been intended—and which the Government would not be willing to accept. But the matters which he did raise are of a kind which any responsible Minister would wish to look into most carefully. I hope that he will give me the opportunity to do that by withdrawing the present Amendment, on my undertaking to look into the matter with close attention between now and Report.

Sir J. Hobson: I am most grateful to the right hon. Gentleman for his attitude. I assure him that the Amendment, however drafted, was not intended to go any further than to meet the point which I tried to explain. If it does go further, it ought to be removed, but I hope that the right hon. Gentleman will be able to find a solution to the problem which I have attempted to put before the Committee. I shall be grateful if he will let me know if he cannot, because we should then have to reconsider our position.

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That this Schedule, as amended, be the Tenth Schedule to the Bill.

Mr. Stratton Mills: I have a point to raise on paragraph 9 (1, c) which deals with the payment by a close company to a participator for the use of property other than money. In the case of tangible property, the penalty applies to
so much of any such consideration as represents more than a reasonable commercial consideration".
Why has not similar treatment been extended to intangible property such as patents, copyrights, trade marks and so on? The Chief Secretary may reply that there is a problem of valuation of this kind of entity, but I suggest that the onus ought to be on the Revenue, when there is this kind of special penalty attached, and that the Revenue itself should have to prove the facts. I do not regard this sort of blanket provision as satisfactory.

Mr. Hirst: I am so much shocked by the Chief Secretary's lukewarm attitude


to some of the Amendments moved by my hon. Friends that I must say something at this stage. The right hon. Gentleman might have been more forthcoming. The idea that a member of a family who helps out someone else at a normal reasonable commercial rate is likely to be a sort of tax dodger is one which I find difficulty to stomach, even at this hour of the night. The true commercial rate is defined in paragraph 1 (1, d, iii) of the Schedule. I never understand what a "reasonable" anything means at law, but it is accepted as being a known factor that a thing is reasonable. Surely it is known in many quarters that it means and accepts something which is fair.
It has been suggested that a person helping someone out in business, as mentioned by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), who could not get a loan through ordinary commercial circumstances—a man who goes to a member of his family and gets a loan at the ordinary commercial rate of 6½per cent.—is tax dodging. The right hon. Gentleman suggests that he would have to do some thinking about it, but he has given no undertaking that the matter will be put right on Report. That is treating the Committee rather shabbily. I do not share the view expressed about great generosity being shown.
There has been amiability about this, and I do not want to be other than amiable although I am very tired. However, I feel that it is not paying proper tribute to the Committee, which has studied the Bill, and the Schedule, in particular, with great reasonableness and very good temper, to insult it, by accident as it were, by the right hon. Gentleman saying that he has to do an awful lot of thinking about whether it would be perfectly reasonable for a relative to help somebody out in his business at the normal reasonable commercial rate laid down in the Bill. It is monstrous to suggest that that is something which needs a lot of thinking about. If they imagine that that will be understood in the country for a moment, right hon. and hon. Gentlemen opposite must be mad. Of course it will not.
I accept that there could be instances where there could be a certain amount of tax dodging, but, frankly, one cannot

tax-dodge in these circumstances. If the reasonable commercial rate is 6½or 7 per cent., we have to thank the Labour Government for that. It may be a high rate, but they have established it.
This is not treating the Committee with the respect it deserves. I am still suspicious about putting this off till Report. It is impossible to imagine all these things being dealt with at that stage—and this provision has been on the Order Paper a long time. It is monstrous that we should pass the Schedule in this form with the very poor amelioration of the Government Amendment which nowhere meets the case, with the right hon. Gentleman saying that he has to do an awful lot of thinking about something which is a perfectly good, sound, decent thing to do in a family business, something which we ought to see honoured and respected. For the right hon. Gentleman to say that he has to do a lot of thinking about it is not creditable to him or the Committee.

Sir Knox Cunningham: I support what my hon. Friend the Member for Shipley (Mr. Hirst) has said. On all sides of the Committee we agree that we want to see people bearing a fair share of tax. However, there will be penalisation of close companies without our Amendments. It is not just a case of securing fair taxation; penalisation will be created.
The Chief Secretary said that he would look carefully at one Amendment as a matter of courtesy, and he accentuated that but did nothing further. I should like him to go further and look at it seriously as a matter of interest and not brush it aside on Report. He should look at it as a matter of principle, as it is, and treat it with serious concern. On these points the Committee ought to have some consideration.

Mr. Diamond: I agree with the hon. Member for Shipley (Mr. Hirst) that the Schedule has been discussed with care and courtesy on both sides; and I want to thank the Committee for that and also the hon. Member for his amiability. When he talks about insults and things being monstrous, we know how to interpret that. I assure him that everything he has said will encourage me towards the consideration I promised earlier, but I did cover rather carefully the point


he raised and I do not want to add to or detract from what I previously told the Committee about it.
The hon. Member for Belfast, North (Mr. Stratton Mills) asked my reason for distinguishing between tangible and intangible assets. As the Bill stands, rent paid to a participator for the use of a tangible asset is to be included in computing a close company's profits for Corporation Tax to the extent that it exceeds a reasonable commercial consideration; but rent or royalty from an intangible asset is 10 be wholly disallowed for tax purposes.
The simple explanation is that it is almost impossible to find a reasonable commercial consideration for these intangible assets. For example, a patent owner can charge a royalty for a company he is closely concerned with at any figure he likes. It would be impossible for the Revenue to demonstrate that a particular royalty was unreasonable. Comparisons in commerce are so broad that there is no means of treating this in any other way and that is the reason for the distinction the hon. Member has picked on.

Question put and agreed to.

Schedule 11.—(SUPPLEMENTARY PROVISIONS ABOUT TAX ON DISTRIBUTIONS, ETC.)

Mr. Diamond: I beg to move Amendment No. 502, in page 174, line 4, after "during", to insert
or on the expiration of".
This is a drafting Amendment which corrects an inexact use of language in Part One of the Schedule concerning the payment of Income Tax on payments received during the year. Paragraph 1(1) provides for tax to be accounted for and paid during the year, but accounting for tax on payments in March and up to 5th April will necessarily be done after 5th April. Hence this Amendment.

Amendment agreed to.

Mr. Diamond: I beg to move, Amendment No. 503, in page 174, line 8, to leave t sub-paragraph (2) and to insert—
(2) If it appears after the end of any such year of assessment either—

(a) that in respect of distributions made by the company in the year the company is liable to account for income tax to an

amount greater than the income tax (if any) borne by it on franked investment income received in the year and on any surplus of franked investment income carried forward to the year; or
((b)) that in respect of payments made by the company in the year other than distributions the company is liable to account for income tax to an amount greater than the income tax (if any) borne by it by deduction on payments received in the year other than franked investment income;

and the amount paid by and not repaid to the company in respect of the year in accordance with sub-paragraph (1) above is less than the amount referred to in paragraph (a) or (b) of this sub-paragraph, the company shall be liable to pay the difference between the two last-mentioned amounts.

The Temporary Chairman (Mr. Steele): It would be convenient to discuss at the same time Amendment No. 580 standing in the name of the hon. Member for Wokingham (Mr. van Straubenzee) and the names of other hon. Members, in page 174, line 15, after "distributions" insert
less the income tax borne by it on income other than franked investment income".

Mr. Diamond: That would be convenient, Mr. Steele.
Amendment No. 503 provides a basis of settlement which seems more favourable to companies than the existing one in paragraph 1(ii) of the Schedule. The original scheme in the Bill was that the Revenue would itself demand a total of two things: first, tax on the excess of distribution over franked investment income and, secondly, tax on other payments.
The new proposal, designed to meet representations made on the subject since the Bill was published, is for an end-of-the-year adjustment such that, while the Revenue will demand tax on any excess of the distribution over franked investment income, it will limit the demand in respect of other payments to the excess of them over receipts other than franked investment income.
I could give a number of examples but I am bound to say, having listened to examples given in the Committee, that I do not think that they are the easiest things to digest at this hour. I repeat that this is a simple accounting procedure, the running account which is provided for in the Schedule. It is an improvement in the provisions of the Schedule in favour of a company and I hope


that it will be acceptable to the Committee.

11.45 p.m.

Mr. Patrick Jenkin: This appears to be an improvement, but I would like to make an additional comment. On reflection, I agree that my Amendment to the Chancellor's Amendment, which has not been called, might not have specifically raised the point I had in mind and which I hope to put now. That Amendment to the Amendment was in line 11, leave out from "above" to end and insert:
are less than the aggregate of the amounts referred to in paragraphs (a) and (b) of this sub-paragraph, the company shall be liable to pay the difference between such first-mentioned amounts and such aggregate".
The Chief Secretary will remember that when we discussed possible grouping for interest payments before the Whitsun Recess, on 3rd June, HANSARD, cols. 2121–22, he was good enough to say that a valid case might have been made out and that, without promising, he would consider it with a view to bringing forward an Amendment on Report.
The point which I would like to make on this paragraph is that if it is to be possible between groups of companies to pay interest gross and for the receiving company to receive it gross, there would appear to be no obstacle to equating for all purposes distributions paid gross and interest paid gross, from both the point of view of the recipient and the point of view of that same recipient when he came to pay it out, so that in the end only one calculation would be necessary to account for the tax, and the tax would be accounted for only to the extent that payments out, whether on distributions or interest or other annual payments, exceeded distributions and annual payments received.
That is certainly the practice under the present system. As the Committee will remember, I said that the beauty of the existing system was "Once net, always net". For this purpose there is no difference at all between dividends and annual payments and it would seem to be a perfectly proper provision to extend to the new system of Corporation Tax provided—and I always concede this—that grouping is to be accepted for interest payments. I am not sure whether

the Chief Secretary will have appreciated that this was the small point which it was intended to raise in the Amendment to the Amendment. I should be grateful if he could give some indication of the Government's views on this matter.

Mr. Diamond: I well remember the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) moving the Amendment to which he has referred. It was a complicated matter with which he dealt extremely well and he went on to apologise to the Committee lest hon. Members should not have fully understood what he had to say. That was quite unnecessary. I repeat that merely to show that I remember the occasion very well. There was a promise, or what HANSARD described as a willingness on my part—and I cannot alter that at this stage and, whatever HANSARD says, that is it—to look at the matter between then and Report. The hon. Gentleman is asking me to bear his comment in mind in doing so, and I will certainly do that.

Amendment agreed to.

Further Amendment made: In page 174, line 34, leave out "and (3)".

—[Mr. Diamond.]

Mr. van Straubenzee: I beg to move Amendment No. 581, in page 174, line 40, to leave out from "made" to "except" in line 41 and insert "quarterly".
The Committee will be glad to note this is a nice short and simple point, quite uncontroversial, and I am certain that in the general spirit of good will the Chief Secretary will accept it without any difficulty at all. The point is that subsection (2) requires tax on distributions to be paid monthly. Under the present law tax on such things as dividends, being on a preceding year basis, are part of a company's normal tax assessment. The effect of this in practice is that tax is paid in some cases some considerable time after the shareholder has received the dividend. Under the new provisions it has to be paid within 14 days.
I am not seeking to persuade the Committee we should return to the old system but it is fair to point out that this very drastic change means, whether it was


intended or not, the withdrawal of substantial credit from the companies concerned. I do seek to put to the Chief Secretary and the First Secretary of State as well that it would be reasonable for the tax now to be paid quarterly.
I do not want to appear to be driving a wedge between the Minister without Portfolio and the Chief Secretary, but I have found additional reasons which I believe will appeal to the Minister without Portfolio. We all remember that yesterday he was saying something was undesirable because it was administratively difficult. I am assured on good authority that this is administratively most convenient. I seek therefore to go a long way to meet the Minister without Portfolio who will, I know, if necessary, support me in the Division Lobby.

Sir Eric Fletcher: I certainly agree with the hon. Gentleman the Member for Wokingham (Mr. van Straubenzee) that this is a short and simple Amendment, but I cannot agree with him that it is non-controversial. The simple issue is whether the Revenue should get its tax within one month or within three months. It does not need much argument to indicate that it is obviously much better, from the point of view of the Revenue, that it should get the tax to which it is entitled monthly rather than quarterly; and there is no reason why a company, in paying its dividend, should not at the same time, or soon afterwards, pay tax due to the Revenue. The system we are now introducing to require a company to account immediately for the tax deducted merely brings it into line with existing law with regard to P.A.Y.E. demands when demands are made for tax deducted from salaries and wages to employees. The liability of the employer, whether it is an individual or a company, is to account for that immediately.
With regard to what the hon. Member has said about administrative convenience it would obviously be administratively much more expensive to the Revenue if payments were received quarterly rather than monthly. From the point of view of the Revenue, it is much better that these amounts should be spread over a long period and should come in monthly rather than quarterly. Therefore, from every point of view, it must be better

that the Bill should stand as drafted. I cannot accept the Amendment, and I must invite the Committee to reject it.

Mr. A. G. F. Hall-Davis: I had no intention of intervening in this debate, but I ask the Government to think again on this Amendment. This is one of those items which may appear comparatively minor, but I can assure the Minister without Portfolio from experience that it will be resented by many medium-sized companies if there is not an attempt to introduce either some transitional provision or, at any rate, not to take the full jump in this Bill.
There is nothing more aggravating in the conduct of a company than when legislation brings about some change in one's circumstances which is quite unforeseeable and which one can do nothing to offset. Although I agree that in terms of the cash flow of the average company this is not a very large item, it is something which will be felt as being an unnecessary intrusion as a result of the tax changes now being made. It destroys confidence on the part of business in the consideration and understanding of the Government for business and company problems. It is this type of action which suggests that administrative tidiness has preference over equity and, indeed, consideration of the problems which business is trying to overcome. Companies plan their cash flow very carefully, and they particularly have to do so in the type of conditions of credit stringency which apply at present. This is a particularly inopportune moment to make this change in such an extreme and drastic way.
This is an unprepared intervention, but I had hoped that the Minister would feel that this was a very reasonable point. I assure him that this will cause resentment perhaps quite out of scale with the figures involved. If he wishes, as I am sure he does and as the Chancellor of the Exchequer has repeatedly said, to show industry that the Government are trying to meet its problems, this is just the sort of point on which he should give way. They should show that they appreciate that these are major changes of time-scale and therefore that they should not be made in this way without warning and in a fashion which gives industry no opportunity to make forward provision for them.

Sir J. Hobson: Even if the Minister cannot give way now, I hope that he will reconsider the matter in view of the representations which have been made to him.
The Minister put forward one argument which seemed to be very one-sided. He said that it was for the convenience of the Revenue that the accounting should be done monthly. In all tax questions, one must consider the interests of the Revenue, but one should also consider the interests of companies and business men and try to hold a fair balance between the two. The hon. Gentleman never devoted his argument to the impact on companies. He said that the Government's proposal would assist the Revenue and therefore that it should be accepted. That is not the right approach.
The Minister's other argument was that this was done for P.A.Y.E. and there-for we might as well do it for distributions. But the two things are very different. They may be similar in some cases, but many payments of dividends will not be anything like the ordinary small payments made to the weekly wage earner who pays P.A.Y.E. I hope that the Minister will consider the representations which have been made before the Report stage.

Sir Eric Fletcher: I cannot add anything to what I have said, except this. It has been said that it is always difficult to move from one system to another. I would point out that there is a transitional provision in subsection 2(2) as a result of which the first payment will not become payable until September, 1966. Therefore, the argument that companies want a certain interval of time in which to make their adjustments is not valid because the transitional period is provided for.
Turning to the observations of the right hon. and learned Member for Warwick and Leamington (Sir J. Hobson), the position is precisely the same with regard to P.A.Y.E. Where a company makes a payment, whether by way of wages or salaries to an employee or by way of dividends to a shareholder, and deducts tax from the payment, there is no reason why it should not account to the Revenue as soon as possible. The only issue is whether the company should retain the tax which belongs to the Revenue for a

period or pay it quickly. It is obviously to the advantage of the Exchequer that the payment should be made as soon as possible.

Amendment negatived.

12 m.

Sir Eric Fletcher: I beg to move Amendment No. 505, in page 174, line 41, to leave out from second "the" to "shall" in line 42, and to insert:
first five months of the year 1966–67".
These Amendments have the result that for the purpose of the monthly accounting between the company and the Revenue for the Income Tax deductible from dividends and other payments, a month will not be a calendar month but will be a month running from the 6th of a calendar month to the 5th of the next calendar month. As a result, the first accounting to the Revenue will be for payments made in the period from 6th April, 1966, to 5th September, 1966, and not to the end of August, 1966, as in the Bill.
This is a small but worth-while procedural change. It is designed to avoid special arrangements for accounting for payments that are to be made in the calendar month of April, which straddles two Income Tax years. But for the Amendment, we should have to have a special return for the payments in the first five days of April and, again, for the period from 1st March to 5th April or, alternatively, to provide for the return of payments in April to differentiate between payments in the first five days and the rest. The change has the advantage of bringing the monthly accounting into line with the P.A.Y.E. monthly accounting, with which both the companies and the Revenue alike are familiar.

The Temporary Chairman: Am I to understand that with Amendment 505 the hon. Gentleman was also dealing with Amendment No. 506, in line 43, and Amendment No. 507, in line 44?

Sir Eric Fletcher: That is so, Mr. Steele.

Amendment agreed to.

Further Amendments made: In page 174, line 43, leave out "that month" and insert "those five months".

In page 174, line 44, at end insert:
In this sub-paragraph "month" means a month of a year of assessment, that is to say, a month beginning with the sixth day of a month of the calendar year.—[Sir Eric Fletcher.]

Mr. Diamond: I beg to move Amendment No. 508, in page 175, line 29, to leave out "in" and to insert "for".
This is a drafting Amendment correcting art inexact use of language exactly corresponding with Amendment No. 502, which we have already taken.

Amendment agreed to.

Mr. Diamond: I beg to move Amendment No. 509, in page 175, line 39, to leave out sub-paragraph (5).
I am privileged, because this is an Amendment in the names of my right hon. Friend the Chancellor of the Exchequer, the right hon. Member for Bexley (Mr. Heath), the right hon. and learned Member for Warwick and Leamington (Sir J. Hobson), the right hon. Member for Altrincham and Sale (Mr. Barber), the hon. Member for Nottingham, South (Mr. William Clark), the hon. Member for Wokingham (Mr. van Straubenzee) and, indeed, the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin). With such names, there is no need to say anything more.

Sir J. Hobson: When my right hon. and hon. Friends and I had put down the Amendment, we were indeed delighted and surprised to find the name of the Chancellor added to it. How frequently in the future we shall have that advantage of his joining our ranks we know not, but in view of the contents of the Bill we think that it is both unlikely and probably undesirable. We are, however, delighted at the way that the Chief Secretary has moved the Amendment, we are grateful to him for moving it and we need say no more.

Amendment agreed to.

Mr. Diamond: I beg to move, Amendment No. 510, in page 175, line 44, at the end to insert:
4. Income tax set against other tax under paragraph 3 above shall be treated as paid or repaid, as the case may be, and the same tax shall not be taken into account both under this Part of this Schedule and under section 44(6) of this Act; but for purposes of section 44(6) any amount paid by a company by virtue of paragraph 1(2)(a) above shall be

treated as if it were income tax borne by deduction on a payment not being franked investment income, and as if that payment had been received at the end of the year of assessment for which the said amount is paid, and the said amount shall he set off against corporation tax or repayable accordingly.
This new paragraph 4 is substituted for sub-paragraph 1(2). It does three things of importance. It provides that Income Tax set against other Income Tax shall be treated as paid to the revenue or repaid to the company as the case may be. Secondly, it provides that such Income Tax on an item of unfranked investment income cannot be taken into account both under this set-off arrangement and Corporation Tax liability under Clause 44. Thirdly, it provides for the treatment of any Income Tax paid over under the adjustment for any year where the facts show there was excessive distribution over franked investment income. I have examples with which I would not wish to bore the Committee. I hope that with that explanation the Committee may feel that this Amendment can be accepted.

Amendment agreed to.

The Temporary Chairman (Mr. Thomas Steele): With the next Amendment, No. 539, we can also take Amendment No. 582, in page 175, line 46, leave out "on the day following" and insert "within thirty days of".

Mr. Diamond: I beg to move, Amendment No. 539, in page 175, line 46, to leave out "on the day following" and to insert "within fourteen days after".
This Amendment, and Amendment No. 511—the next Government Amendment—which, perhaps, we can discuss at the same time, with your indulgence, Mr. Steele, provides that Income Tax due under an assessment shall be due within 14 days after the issue of the notice of assessment. This is an improvement in the company's favour. The existing paragraph makes this tax due on the day after issue. We are proposing an interval of 14 days. Interest runs from the day when tax is due, and it is reasonable to allow a short period of grace, after the assessment is issued, to cover accidents and minor adjustment holding up payment. I do not think there are any other reasons for this. I have said that having regard to other views which may be held in other parts of the Committee.
Fourteen days should be ample for the purpose.

Amendment agreed to.

Further Amendment made: In page 175, line 47, at end insert:
(unless due earlier under paragraph 2(3) above); and where the amount of any tax payable in accordance with paragraph 1(2) above is agreed between the company and the inspector, it shall be due within fourteen days after it is so agreed".—[Mr. Diamond.]

Sir J. Hobson: I beg to move, Amendment No. 515, in page 176, line 10, after "that" to insert "in".
I think it would be for your convenience, Mr. Steele, and that of the Committee, if we were to discuss the two following Amendments, No. 516 and No. 517, at the same time, in page 176, line 10, after "(2)", insert:
for the words 'three months' there shall be substituted the words 'one month'".
and in page 176, line 11, leave out from "tax" to and "in line 12.

The Temporary Chairman: If the Committee wishes.

Sir J. Hobson: The object of this Amendment is to deal with the payment of interest on Income Tax due after the assessment. Hitherto, interest on Income Tax due on an assessment, although calculated from the day following the date of the assessment, has not been charged if the tax has been paid within three months. Under paragraph 4(3) of this Schedule, as it stands, the remission of interest within the three months' grace in respect of an assessment under Schedule A is not to apply. Under paragraph 4(1), following the earlier Amendment, subject to any appeal tax shall be due within 14 days of the issue of the notice of assessment. Previously, in matters of Income Tax, sums under£1,000 did not bear interest and interest amounting to less than£1 was not collected. The Government are removing the limit of£1,000 and removing the provision in respect of three months.
We do not object to the removal of the£1,000 limit. We say, however, that to expect people to pay on the due date and not to have any credit from the Government is quite wrong. The Government ought to be able to give thirty days credit, as most commercial firms do;

and if it is paid within thirty days, no interest should be due. This is normal commercial practice. It would save the Inland Revenue a great deal of additional work in collecting interest. Over short periods, although admittedly the interest on very large sums might be substantial, on the vast majority of sums it would be a matter of collecting tiny pieces of interest in respect of payment delayed beyond fourteen days. If the payment were not made within thirty day, the full amount of interest at 3 per cent. would be payable from the date on which the payment became due; one would have an assessment fourteen days before it became due when matters of appeal were considered, and beyond that date interest would run.
The proposal would save much administrative cost and on balance would be convenient and sensible from the point of view of both the Revenue and the taxpayer.

Sir John Foster: Is not the Amendment all the more necessary because under paragraph 2(3) the amount is due without assessment? It looks as if the interest could run from the date on which the assessment ought to have been made. Does not that make the Amendment all the more necessary? The fourteen days provision applies only where there is an assessment. If interest is applicable from the moment the payment is due, if a company should have made a return on 1st January, interest is due from then.

Sir Eric Fletcher: I am afraid that I cannot advise the Committee to accept the Amendment. Under my right hon. Friend's Amendment, which was accepted by the Committee, the Government have considerably alleviated the position with respect to payment due to the Revenue and we feel that the primary consideration should be to place on companies every inducement to pay over to the Revenue the tax due which they have, in fact, deducted from the dividends paid to shareholders. If the due date is postponed for a period of a month, as suggested by the right hon. and learned Member for Warwick and Leamington (Sir J. Hobson), there will be no inducement whatever on any company to pay before the end of the month.
We do not think it unreasonable that a company which pays dividends and deducts tax from them should be put under an obligation at the same time to pay the tax to the Revenue. The Amendment which has been accepted gives a period of fourteen days grace, which is not unreasonable. It is most desirable in the interests of the Exchequer that there should be a prompt and regular flow of the tax due to the Revenue into the Exchequer. For all those reasons, I am afraid that we cannot accept the Amendment.

Amendment negatived.

12.15 a.m.

Question proposed. That this Schedule, as amended, be the Eleventh Schedule to the Bill.

Mr. Patrick Jenkin: Paragraph 5(b) gives details of the provisions about election for groups of companies. It provides, rather strangely, that a notice of election shall take effect only from the beginning of the following year of the assessment. It has been recognised on both sides of the Committee that where there is a group of companies the notice of election is a reasonable provision which is of benefit to groups, and its absence would be an unfair disadvantage.
In those circumstances, it seems hard that the notice should not take effect from the date on which it is made. Provided the inspector is satisfied that the notice of election has been validly given, there seems no reason why it should not take effect straight away. There is no particular point about it taking effect in the middle of the year because until it has taken effect the income received after deductions of tax will be franked.; after it has taken effect there will be grouping. There seems no difficulty in a company's assessment that it should receive from the same source in the same year both franked and grouped income. Now that the Chief Secretary has had an opportunity to consider the point, perhaps he would be good enough to let me know the answer.

Mr. Diamond: The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) has raised a point which calls for consideration. Indeed, it is under consideration at the present time, and I

will therefore be in a position on Report either to explain why nothing further need be done, or to see that the Bill makes the appropriate adjustment.

Question put and agreed to.

Twelfth Schedule agreed to.

Schedule 13.—(ADAPTATION OF SYSTEM OF CAPITAL ALLOWANCES.)

Sir Eric Fletcher: I beg to move, Amendment No. 489, in page 186, line 21, to leave out "(4)" and to insert "(3)".
If it is convenient, perhaps we could deal at the same time with Amendments Nos. 490, 491, 492, and 493.
All these Amendments correct either typing or printing errors.

Amendment agreed to.

Further Amendments made: In page 187. line 49, leave out "61" and insert "52".

In page 188, line 5, leave out "62" and insert "53".

In page 191, line 45, leave out "and writing-down allowances "and insert" a writing-down allowance".

In page 193, line 15, leave out "(3)" and insert "(2)".—[Sir Eric Fletcher.]

Schedule, as amended, agreed to.

Schedule 14.—(MISCELLANEOUS ADAPTATIONS OF INCOME TAX ACTS FOR CORPORATION TAX.)

Amendments made: In page 194, line 39, at end insert:
7.—(1) As from the beginning of the year 1966–67, sections 491 and 492 of the Income Tax Act 1952 (which provide for adjusting under-deductions and over-deductions of income tax from certain payments made before the passing of an annual Act imposing the tax) shall be amended in accordance with the following sub-paragraphs.
(2) For section 491(3)(a) (by virtue of which section 491(2) has effect where too little tax is deducted under section 184 from preference dividends) there shall be substituted:—
(a) any preference dividend within the meaning of Part IV of the Finance Act 1965 from which a deduction of tax may be made under the said Part IV; and".
(3) In section 492 (over-deductions by bodies corporate under section 169 from interest payments on securities or under section 184 from preference dividends)—
(a) after the words "section 169" there shall be inserted the words "or section 170"; and


(b) for the words "section 184 of this Act" there shall be substituted the words" Part IV of the Finance Act 1965"; and
(c) at the end of the section there shall be added—
In this section 'preference dividend' has the same meaning as in Part IV of the Finance Act 1965, and 'share' includes stock.
In page 195, line 31, at end insert:
(4) Where any period of account of a company beginning before the year 1966–67 is partly but not wholly comprised in an accounting period for corporation tax ending in that year, then the part not so comprised shall be treated for purposes of section 20 as a separate accounting period.—[Sir Eric Fletcher.]

Mr. MacDermot: I beg to move, Amendment No. 394, in page 196, line 17, at the end to insert:
(b) for section 28(11) proviso there shall be substituted:—
Provided that there shall be disregarded any amount received by a company by way of dividend from an associated company in so far as the dividend is paid out of income arising to the company paying it since the two companies became associated companies, and Schedule 16 to the Finance Act 1965 shall with the necessary modifications apply for determining the extent to which the dividend was so paid"; and.
The Amendment corrects an inadvertant omission from paragraph 14 of this Schedule. It was overlooked that the proviso to Clause 28(11) contained a reference to the original dividend stripping legislation, which is now superseded by Clause 61, and the proviso should therefore be amended to take account of the change.

Amendment agreed to.

Mr. William Clark: I beg to move, in page 198, line 14, at the end to insert:
(2) Where in any previous chargeable accounting period a company has sustained a loss as computed for the purposes of the Profits Tax and this loss has not been allowed against subsequent profits as computed for the purposes of profits tax, 15 per cent. of the amount of such loss shall be deducted from or set off against any profits arising in the year 1966–67 and up to the amount of the deduction or set off, those profits shall be excluded accordingly from any assessment to Corporation Tax (the relief in any year of assessment being given as far as may be against profits of an earlier rather than profits of a later accounting period).
The idea of this Amendment is to relieve companies from a Profits Tax loss that has not been utilised. The Financial Secretary will appreciate that one can

have the position of an Income Tax loss which can be used under Section 341 of the 1952 Act, as an almost immediate relief for Income Tax losses. In the case of Profits Tax, however, losses cannot be set off and relief claimed but must be carried forward. The position can arise where a company has a Profits Tax loss which has been unused.
The Amendment seeks to claim 15 per cent. of this loss, and this figure has been chosen because the Profits Tax rate was 15 per cent. We appreciate that this is a rough-and-ready yardstick, but we would not necessarily insist on the 15 per cent.
To get a more realistic figure of the Profits Tax loss that should be carried forward against Corporation Tax, if we aggregate the fraction of 41·25 over 56·25, that is, the 8s. 3d. rate over the 8s. 3d. plus the Profits Tax rate, and multiply that by the Income Tax loss, having found that figure, aggregate with that 15 over 56·25, that is, the Profits Tax element over the Profits Tax element plus the 8s. 3d., and you multiply that by the Profits Tax loss.
If I may give an example, if you work out the Income Tax loss on£100 it gives£73, but the Profits Tax loss on£100 gives£27. Aggregate those and it gives£100, and obviously there is no relief. But if you have a difference between the Income Tax loss and the Profits Tax loss,£480 Profits Tax loss on this formula gives you an allowance of£130 to be set off against Corporation Tax.
I think this is an extremely important point. I am sure it was not the intention of the Government to penalise companies who had Profits Tax losses which they thought they could use in the future. With the imposition of Corporation Tax they should be able to use at least some of those Profits Tax losses.
The Financial Secretary will see that the formula I have given now, rather than the straight 15 per cent., will in fact give equity to those companies with Profits Tax losses. We do consider this to be an extremely important point, and I hope the Financial Secretary is going to be sympathetic in his answer. I am sure that from the point of view of equity we must press this. But we look forward


to the Financial Secretary saying he will consider a suitable Amendment on Report stage.

Mr. MacDermot: The points which the hon. Member for Nottingham, South (Mr. William Clark) has raised are highly technical and I will certainly respond to his inviation to look with care at what he has said. But I must make it clear at the outset that the Amendment as it appears on the Order Paper would not be acceptable, and I rather gathered from what he said that the hon. Gentleman recognised that himself. The Amendment would allow a company to carry forward 15 per cent. of any accumulated losses as computed for the purposes of Profits Tax. In our view the Amendment appears to be misconceived, because in general a loss carried forward under Profits Tax rules is the same loss as that carried forward under Income Tax rules, and it would therefore involve double counting.
There are some circumstances in which a Profits Tax loss may rank for carry forward although there is no Income Tax loss unrelieved, but the typical case of that is where certain income, namely, United Kingdom dividends, is excused Profits Tax in the hands of a recipient company, although it is part of the company's taxable income for Income Tax purposes. In our view the carry forward of an Income Tax loss in such circumstances—already provided for in paragraph 20(1) of the Schedule—is all that the equity of the situation calls for.
The alternative formula which the hon. Member was proposing was mooted in an article in The Times on 14th June. If what he has in mind is merely an alternative formula for a general provision for carry forward we shall not be able to accept it. If the hon. Member has in mind specific cases where these losses are incurred, and he thinks there is a valid case for provision being made for their being carried forward, I will gladly consider them. I issue that invitation to him, if he wishes to supplement what he has said, but in any event I shall study carefully what he has said. This is a highly technical matter, but from what I have been able to gather from his argument I do not wish to give him any false hopes, because I do not think that this is an Amendment that we shall be able to accept.

Mr. William Clark: If, in my formula, we take the Income Tax loss to be equal to the Profits Tax loss there is no extra carry-forward. It is only where there is an excess of Profits Tax loss above Income Tax loss that there will be any further carry-forward. I assure the hon. and learned Member that there is an extremely important point here, but as he has promised to consider the matter and to see whether there is a valid argument for the proposal, we look forward to seeing what he proposes on Report. In view of his undertaking, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Peyton: I beg to move Amendment No. 683, in page 198, line 38, after "22" to insert "(1)".

The Temporary Chairman: With this Amendment we can take Amendment No. 684, in page 198, line 49, at end insert:
(2) Where sub-paragraph (1) above has effect the company may by notice in writing given not later than twelve months after the end of the accounting period specified in the notice elect to treat such an amount of sums disbursed as expenses of management as is specified in the notice (being an amount not exceeding the total of the sums so disbursed in the said accounting period) as an amount unrelieved for the purpose of sub-paragraph (1), and where such a notice is given the amount so treated shall not be available for relief under section 425 of the Income Tax Act 1952.

Mr. Peyton: Yes, Mr. Steele. My recent comparatively happy experience with Treasury Ministers and my Amendments leads me to believe that they cannot come to any conclusion other than that they must accept these two, and on that basis—and only on that basis—I beg to move the Amendment formally.

Mr. MacDermot: The hon. Member for Yeovil (Mr. Peyton) is displaying a rare sense of confidence. I must leave it to the Committee to try to reach such conclusions as it is able why he should feel so confident. Undoubtedly this is a red letter day for the hon. Member for Yeovil. Although he has not explained his Amendments very fully, it is right to tell hon. Members that there are substantial arguments why it would be right to accept them.

Mr. Peyton: I am quite prepared to do so, if the hon. and learned Member wishes me to.

Mr. MacDermot: I will relieve the hon. Member of that burden by saying, in short, that the Amendments deal with a transitional situation, and their effect would be to add to the relief which would be afforded, during that period, to the taxpayer. The proposal in effect is to allow the company to choose how much of the management expenses disbursed in 1965–66 it will include for Income Tax relief for that year or which it will take forward for Corporation Tax. In the opinion of the Government this is fair and reasonable and I would advise the Committee to accept it.

Amendment agreed to.

12.30 a.m.

Question proposed, That this Schedule, as amended, be the Fourteenth Schedule to the Bill.

Mr. William Clark: I should like to ask one point for the purpose of clarification. In this Schedule the distribution for the accounting year is such that if one has a company within the Corporation Tax period which has made a loss of£100, but which in the second year has a profit of£100, there may be a difficulty about the 60 per cent. distribution.
I have had this point put to me by a number of people, and I would ask the Financial Secretary if he could say, categorically, that in such a case, so far as the 60 per cent. for a close company is concerned, there will be no distribution necessary for the simple reason that£100 will be carried forward. I have been advised that as the Bill is drafted for the purposes of distribution this needs to be referred back to the previous year when there was a loss. Could the Financial Secretary state if there will be no 60 per cent. of the£100 profit in the second year?

Mr. MacDermot: There are advantages, as the Committee well knows, in moving Amendments shortly; but sometimes, with a very highly technical matter, there are advantages to the Treasury Bench in not moving them shortly. Secondly, as my right hon. Friend the Chief Secretary set a good example earlier in the day by saying that he thought it wise to confess when one was ignorant, I should now say that I am in that situation at the moment. With his expert knowledge the hon. Gentleman

doubtlessly finds this a very simple matter, but I cannot give him the categorical assurance he seeks. I will, however, take an early opportunity to find out the facts and let him know.

Question put and agreed to.

Schedule 15.—(DOUBLE TAXATION RELIEF, AND OVERSEAS TRADE CORPORATIONS.)

Mr. Edward M. Taylor: I beg to move, in page 200, line 37, at the end to insert:
(c) the aggregate income taken into account in computing foreign tax shall be related to the aggregate foreign tax applicable to such income.

The Temporary Chairman (Mr. Grant-Ferris): It may be for the convenience of the Committee if, with this Amendment, we also discuss Amendments No. 414, in page 201, line 13, to leave out sub-paragraph (2), and Amendment No. 415, in page 201, line 48, after first "tax", to insert:
and for the purposes of any credit for foreign tax".

Mr. Taylor: Thank you, Mr. Grant-Ferris. These Amendments deal with a serious problem arising from double taxation relief and they have been on the Paper for some time, so the obvious arguments for them will doubtlessly have been considered by the Treasury Bench. The first of the three establishes the new principle for computing and assessing overseas tax payable, and Amendment No. 414 makes provision for removing the existing arrangements. In Amendment No. 413, we are putting forward the new principle, and in No. 414, we are proposing that the old one should be taken out. In Amendment No. 415 we are extending to Corporation Tax workings the proposed new principle established in Amendment No. 413 for Income Tax.
I feel that the principle which we are trying to establish is fair and reasonable. It affects only a small number of companies in very special circumstances. First of all, it affects only those overseas companies which trade in more than one foreign country. Apart from that, it affects only those which trade in different countries where the taxation leviable is either higher or lower than that of this country. Clearly, only a small number of companies will be affected, but the way in which they will be affected calls for


special consideration, and I hope that we shall get that consideration tonight.
The Schedule provides for relief to those companies whose income suffers from double taxation, but this relief is given at the United Kingdom rate or at the foreign rate, whichever is the lower. This in itself is not objectionable: in fact, it is a fair arrangement. But, if the corporation trades in several countries where taxation is at different rates, a quite different situation arises. Under this Schedule, the corporation's overseas activities are not treated as a whole, as I think they should be, but each separate activity and each different country is taken on its own. I feel that this proposal is quite indefensible. For these purposes, the corporation's overseas activities should be treated as a whole and not as a series of individual activities.
The result of the Schedule being in its present form that companies of this sort are not getting full relief from United Kingdom taxation in respect of overseas earnings which may be taxed at a higher rate. This arises even though, in some circumstances, the company may have activities in other countries where there is a lower rate of taxation than in the United Kingdom. This ridiculous situation would be far less onerous and objectionable if we were prepared to accept the principle of averaging, in other words, to take those countries where the rate is particularly high and find a balance with those countries where it is low. If this were accepted, our objections to the Schedule in its present form would be removed.
In the Amendment, we are simply trying to get the acceptance of the principle of averaging, which we feel is a fair way of dealing with such a situation. In support of the Amendment, I should like to refer to three special considerations. I have tried to establish the simple general principle of averaging, trying to point out the difficulties which could arise through companies trading in different countries where the tax position is vastly different. Throughout discussion on the Bill, the proposition has been put to us that a corporation will be regarded as something greatly different under the new taxation system. We are told that a corporation has an identity of its own, quite apart from that of its shareholders.

In these circumstances, the Government should accept that an overseas trade corporation or an organisation trading in different countries should be treated as one and its overseas activities treated on one basis.
The second thing which we have to bear in mind is that if these Amendments are not accepted, we shall discourage some companies already trading overseas from trading in certain other territories. Admittedly, this disincentive will not apply to all countries abroad, but it will apply to some. For the good of our nation, those companies already trading abroad are most able to expand their activities in other nations. This is something which should be encouraged and which will be discouraged if the Amendments are not accepted.
The third point is the relevance of this Amendment to the shipping industry. The shipping industry, in particular, trades a good deal in many countries, and sometimes its activity in those countries is of limited duration. In some countries there is the novel development of, so to speak, instant taxation. In india, for instance, when a ship comes into port, taxation is levied on assessed profits at the port, Shipping, perhaps above all other industries, is subject to the full rigours of the Schedule as it stands.
The Amendment would not affect a great number of companies but it would have a most important result for those which it did affect. I hope that the Government will accept it.

Mr. MacDermot: As the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) said, the Amendment has been on the Order Paper for some time, and we have had an opportunity to consider it. Incidentally, I am happy to learn that the question which the hon. Member for Nottingham, South (Mr. William Clark) thought to put on the last Schedule does not, in fact, arise on the Schedule at all, so perhaps that is a sufficient explanation of why I was not able to answer it. In any case, I do not think that the answer would have pleased the hon. Gentleman (a) if I were allowed to make it, and (b) if he were here to hear it.
These Amendments are designed to allow the pooling of overseas taxes in respect of which credit is allowable


against United Kingdom tax. As they stand, they would not be acceptable because they go very wide and would afford far too generous a measure of relief. From his experience of these matters, the hon. Gentleman will realise that there are certain fundamental objections in principle to pooling. I shall give one or two of them. A company already operating in a low-tax country could invest in a second country where taxes were high and thereby transfer some or all of the burden of the second country's high taxes to the United Kingdom Exchequer. Conversely, a company already operating in a high-tax country which was contemplating investment elsewhere would have a strong incentive to invest in a low-tax country rather than, for instance, at home.
Both the majority and the minority of the Royal Commission rejected the suggestion that overseas income should be aggregated for the purpose of double taxation relief, considering that a pooling arrangement would go beyond the aim of ensuring by double taxation relief that any United Kingdom charge on overseas profits should do no more than bring the combined rate up to the United Kingdom rate and that pooling would be hard to justify on any view of relative taxable capacity.
But we have received very many and varied representations on this matter. Some companies are in a rather different situation in that they are not carrying on separate trades in different countries but are carrying on one trade the operations in which, by its nature, are carried on in many different places. The most obvious example is a bank with its head office in England which conducts banking operations in various foreign countries. We think that there is some force in the argument in relation to some of these companies, but the Amendments would not offer a satisfactory way of dealing with the situation, apart from the fact that they are in such wide terms. They are silent, for instance, on the difficult problem of how to treat losses. Clearly, any losses ought to go to reduce the measure of any pooled overseas income against which credit could be allowed. Otherwise the taxpayer would be having the best of both worlds.
12.45 a.m.
I do not wish to mislead the Committee in any way. I am not giving an undertaking that we shall be able to find a satisfactory solution to the problem which may be confined to this special kind of case that I have been indicating, but if we can find a way of doing so without its extending over the whole field, we shall be glad to try to achieve that object and, if we are able to, bring forward suitable Amendments. I want to make clear that I am not giving an undertaking that I will bring forward Amendments, but I shall be glad to consider the matter further.

Mr. Peter Emery: I thank the Financial Secretary for his undertaking at least to review the position. I do not think that there is a great deal of force in the argument that he used, both now and previously, that if a company is operating in a low-tax country it is likely to look around for a high-tax country in which to invest in order to average. It will invest only if there is a reasonable chance of operation. It is not just a matter of theory in trying to balance it. Having made that point, which formed a considerable part of his argument, I think that it would be foolish of us to divide the Committee on this matter in view of the undertaking which has been given.

Mr. Edward M. Taylor: Although the hon. and learned Gentleman has promised to look into this, I still feel very disappointed with his reply. The argument put forward about people moving from one country to another to try to ease the tax position is ridiculous. When we consider the difficulties that businessmen have at present, we must accept that people do not just move activities into another country purely from a tax point of view.
I hope that the Chancellor will appreciate the difficulties that businessmen have at present with taxation as it is abroad—when we are trading in Burma where there is a 99 per cent. tax on profits, in Ghana where the tax is more than 60 per cent., in other countries where it varies, and in others where there is a moratorium on all money going out of the country or where, like Indonesia, assets are seized without compensation. It is no joy trading abroad. The Chancellor should take these difficulties into


account and not think of businessmen jumping from one country to another in an attempt to make their tax position easier.

Amendment negatived.

Mr. MacDermot: I beg to move Amendment No. 646, in page 201, line 43, at the end to insert:
(3) In relation to dividends paid by a company resident in the Commonwealth territories, paragraph 3 of Schedule 17 to the Income Tax Act 1952 shall apply as if in that paragraph and (as they apply for purposes of that paragraph) in section 16 of the Finance Act 1964 and sub-paragraphs (1) and (2) above references to one-quarter of the voting power were references to one-tenth of the voting power.

The Temporary Chairman (Mr. Grant-Ferris): It will be convenient also to take the following Amendments:
Amendment No. 762, in page 201, line 29, leave out from "Kingdom" to "then" in line 31.
Amendment No. 544, in line 30, leave out "one-quarter" and insert "one-tenth".
Amendment No. 672, in line 31, after "dividends", insert:
or a unit trust or investment trust resident in the United Kingdom".
Amendment No. 763, in page 201, leave out lines 39 to 43.
Amendment No. 545, in line 40, leave out "one-quarter" and insert "one-tenth".

Mr. MacDermot: I move the Amendment very briefly because I referred to it during our debate on Clause 60, summarised its effect and gave the reasons why my right hon. Friend thought it right to bring it forward. Its main effect is to reduce from a quarter to one-tenth the minimum proportion of the voting power in a company resident in the Commonwealth territories which a United Kingdom company must control in order to qualify for unilateral relief in respect of underlying tax upon the Commonwealth company's profits.
The qualifying minimum for unilateral relief for investment in Companies outside the Commonwealth will remain at one-quarter. The Committee will remember that it was because of representation about certain companies, particularly mining companies, which are controlled by a consortium of companies in the

United Kingdom that we felt it right to bring forward this Amendment.
We are discussing with it a number of other Amendments which would make further extensions and I must warn the Committee that we do not feel that we can advise it to accept them. It is perhaps better that we should hear what is said about them before I answer further.

Mr. Emery: We have, as those of us who have been present during most of the day know, already gone over a number of points raised on these Amendments in discussing Clause 79. At this hour I have no intention of boring either the Government or my own benches with a repetition of the arguments. We think quite definitely that the Government are right to accept the points that there should be a reduction from one-quarter to one-tenth. This is a very considerable concession and I think that it is enough to accept what the Chancellor is putting forward.

Amendment agreed to.

Mr. Temple: I beg to move Amendment No. 622, in page 201, line 43, at end to insert:
5. Where a company resident in the United Kingdom and carrying on the business of insurance receives any income arising from an investment in a territory outside the United Kingdom being an investment which either—

(a) is required to be made by the law of the territory; or
(b) is proved to the satisfaction of the Board to be necessary or expedient for the purpose of maintaining or expanding the business carried on in the territory (whether such business is carried on by the company or through a subsidiary),

credit shall be allowed against corporation tax in respect of the income in accordance with Schedule 16 or 17 to the Income Tax Act 1952.
I was rather heartened by our previous successes and thought I might only have to move this Amendment formally but unfortunately the Financial Secretary has indicated a certain amount of disfavour towards its aim. My object is solely concerned with companies carrying on a business of insurance overseas. I think that everyone is seized of the importance of British insurance and wishes to see it carry on and expand its worldwide trade.
I want to explain this Amendment under three headings: first, the scope of the insurance business which would be affected; secondly, the cope of the


Amendment and, thirdly, the differentiation between portfolio investment and a trade investment in respect of certain investments of insurance companies overseas.
Everyone realises that London is the home of the world insurance market and that is how we want to keep it. Seventy per cent. of the non-life business of British insurance companies is transacted overseas. British insurance companies have built up reserves outside the United Kingdom not by sending money from the home country but by building up within their overseas businesses.
I see that the Secretary of State for Economic Affairs is here and we welcome him to the Committee. It is not often that we have him with us and I am glad that he is here for this Amendment because insurance business is vital to the whole economy and to the raising of loans for this country in times of difficulty just because we have collateral investments, particularly in the United States.
British insurance has the largest single British investment in the United States of America with£700 million of insurance money invested. Although underwriting in recent years has been unprofitable, earnings from British insurance have been about£50 million a year, coming into Britain across the exchanges. I remind the Committee that because British insurance has been unprofitable, a number of British companies have recently withdrawn entirely from the United States market. It would be extraordinarily unwise of the Government to disregard the importance of British insurance and through their tax proposals to seek to undermine the pre-eminent position of this country in world insurance.
I turn now to the scope of the Amendment. It is entirely directed to insurance companies, and by that I mean limited companies. It seeks to give relief against double taxation in respect of Corporation Tax on the overseas investment income only in two special circumstances. Here I have special regard to the fact that the Chancellor of the Exchequer has said that it is his intention to renegotiate double taxation arrangements with foreign countries.
The two special circumstances which I have picked out in the Amendment are

where an investment of an insurance company has to be held overseas in a specific country because the law of that country requires an insurance company to make an investment in order that it shall be able to write insurance business in that country. In this country we require foreign insurance companies to keep up what is termed a "solvency standard", and in effect that means that foreign insurance companies investing in this country have to hold considerable reserves here.
The second point of the Amendment is that the Board of Inland Revenue would have it within its power to determine whether certain other investments would be treated as trade investments rather than portfolio investments for insurance purposes. It will be within the knowledge of the Committee that in the United States—and I mention the United States only as an example—a British or any other foreign insurance company has to obtain a Best's 5A Rating in order to carry on a first-class business of insurance.
The Best's 5A Rating means that 50 per cent. of its premium income has to be invested in the country where the business is carried on. I am not saying that by law 50 per cent. of its premium income has to be held there, but that by law most insurers in the United States are not allowed to insure with a company which does not have a Best's 5A Rating. Therefore, under this second heading British insurance companies must keep a very large proportion in their investments in the United States. I give that purely as an example of similar arrangements applying in other parts of the world. The Amendment seeks the bare minimum in order to keep British insurance companies operating on their present worldwide scale.
I fully realise that when speaking to the present Government I have to make a sharp differentiation between portfolio and trade investment. This is a question which I shall seek to answer quite directly. I should like to quote the Financial Secretary who said:
…I think that it has generally been agreed in this Committee that there is and can be a great difference in the effect on its returns to this country between trade investment overseas and portfolio investment. It is the trade


investment which is likely to be more productive, and is designed to be productive of helping future trade between ourselves and the countries in which the investment it taking place"—[OFFICIAL REPORT, 16th June, 1965: Vol. 714, c. 575.]
1.0 a.m.
Therefore, the Financial Secretary to the Treasury recognises that there is an essential difference between portfolio and trade investment. I have to prove that these investments of the insurance companies are trade investments. I do it again under the two headings in my Amendment. Firstly, unless sub-paragraph (a) is complied with, the insurance company concerned cannot trade in any foreign country at all because the law of the country demands that it should make a certain investment in that country before it can carry on the business of insurance. I think it may be accepted that this is a trade investment.
Under (b) I have referred to the Best's rating which is necessary in the United States of America. Unless that particular rating is obtained then no business can be obtained by a British insurance company. Again I have settled law on my side in this particular argument for saying this is trade investment rather than a portfolio investment. As a lawyer the Financial Secretary will know of the case of the Liverpool London Globe v. Bennett settled in 1912. This particular case has been upheld by successive Chancellors, including Sir Stafford Cripps, and I think it would be very unwise not to accept the findings of that particular judgment. This was that it would be unrealistic to separate investment income from underwriting results. What I am asking is that those parts of insurance investment, which under my Amendment would be treated as trade investment, should be treated as trade investments for Corporation Tax double taxation provisions.
I was going to refer to the quite excellent press which this Amendment has had in The Times, the Telegraph and also in the Daily Mail and other responsible newspapers, but I am only going to refer to the Daily Mail, which said that the British Insurance Association had been to the Treasury and the Inland Revenue.
Both the Chancellor and the Inland Revenue looked sympathetic.

I am looking across the Committee and I think, judging from the reactions which I am getting from the Treasury Bench, they are not looking quite as sympathetic as they evidently did when they were interviewed by the British Insurance Association. Nevertheless that does not depress me in the least because I believe I have deployed a case which is almost unanswerable and I hope very much that I shall have the support of the First Secretary of State who is very interested in the overall economic situation. Personally I believe Britain is uniquely fitted to be the international insurance centre of the world. Unless we can keep international business in this country our high standard of living cannot be maintained. If this Amendment is not accepted the damage to the British insurance industry may well be incalculable.

Mr. MacDermot: I am sorry if we gave the impression to the hon. Gentleman the Member for the City of Chester (Mr. Temple) that we were looking at him in an unsympathetic way. We always try to extend the greatest courtesy to his arguments, particularly as they are so forcefully and clearly represented on all occasions. He has made it clear that the intention of his Amendment is to secure that insurance companies which get dividends from overseas companies should remain entitled to unrestricted relief for underlying tax. I must make it clear there are certain technical objections, with which I need not worry the Committee, as to why we could not, in any event, accept this Amendment in the form in which it appears on the Order Paper. As he said, my right hon. Friend has received a number of representations from insurance companies on this matter.
The problem arises particularly in connection with insurance companies operating in such countries as America where, by agreement, there is unrestricted relief for underlying tax. They point out that if they are to carry on their insurance business they must make substantial investments overseas. Perhaps I could refer to America because I think that it is mainly a problem concerned with that country. Not only are there certain minimum requirements to be satisfied, but their status as insurers in America depends on the reserves which they hold


in that country. Moreover, for taxation purposes, they are generally treated as financial concerns, so that the dividend income properly forms part of their trading receipts. I accept, therefore, the hon. Gentleman's argument that there is a real distinction between this investment and what I may call ordinary portfolio investment.
As the hon. Member for the City of Chester said, my right hon. Friend received these representations sympathetically. He wants to consider them carefully. His consideration of the problem is not yet complete, but he can give an assurance that these problems are being considered sympathetically and he will take fully into account all the arguments which have been deployed. I cannot give an undertaking that we will be able to bring forward Amendments to deal with the matter by Report. If we can, we certainly will.

Mr. Peter Walker: I am surprised that the Government have not introduced an Amendment of their own to cover this very important point. This matter concerns an industry which is probably the biggest single earner of invisible earnings for this country. It has been well known to the Treasury for some time. The moment this Bill was published representations were made by the British insurance industry. The matter has been fully discussed by the Press. I do not understand the statement of the Financial Secretary that he is uncertain about whether anything can be done by Report. This matter is of such fundamental importance to the economy that

I should have thought that it was essential that something should have been done by this stage of the Bill, let alone by Report.

Here is an industry which is dependent for its very existence abroad on having overseas investments. The Financial Secretary is wrongly informed if he believes that this matter mainly concerns the United States. It is particularly a case which concerns the African and Asian countries which insist on very considerable investment in the countries where British insurance offices operate. In almost every market of the world, with more and more nationalism, there is an insistence that investment takes place in those countries. We have long been the world's greatest insurance market. Already this Bill has dealt considerable blows to the British insurance industry. The thought that the Government are so complacent about this industry that they do not even consider doing anything by Report is alarming.

The Amendment is very carefully drawn so as not to include surplus portfolio investment. It is purely confined to investments required for continuing the insurance industry. It has been tabled for three weeks. If in those three weeks a matter concerning the whole British insurance industry cannot be dealt with by the Treasury, it is a very poor reflection on the Treasury. I would certainly urge my hon. Friends to divide on this Amendment.

Question put, That those words be there inserted:—

The Committee divided: Ayes 283, Noes 289.

Division No. 199.]
AYES
[1.10 a.m.


Agnew, Commander Sir Peter
Bessell, Peter
Bullus, Sir Eric


Alison, Michael (Barkston Ash)
Biffen, John
Burden, F. A.


Allan, Robert (Paddington, S.)
Biggs-Davison, John
Butcher, Sir Herbert


Allason, James (Hemel Hempstead)
Bingham, R. M.
Buxton, Ronald


Amery, Rt. Hn. Julian
Birch, Rt. Hn. Nigel
Campbell, Gordon


Anstruther-Gray, Rt. Hn. Sir W.
Black, Sir Cyril
Carlisle, Mark


Astor, John
Blaker, Peter
Cary, Sir Robert


Atkins, Humphrey
Bossom, Hn. Clive
Channon, H. P. G.


Awdry, Daniel
Bowen, Roderic (Cardigan)
Chataway, Christopher


Baker, W. H. K.
Box, Donald
Chichester-Clark, R.


Balniel, Lord
Boyd-Carpenter, Rt. Hn. J.
Clark, Henry (Antrim, N.)


Barber, Rt. Hn. Anthony
Boyle, Rt. Hn. Sir Edward
Clark, William (Nottingham, S.)


Barlow, Sir John
Braine, Bernard
Clarke, Brig. Terence (Portsmth, W.)


Batsford, Brian
Brewis, John
Cole, Norman


Beamish, Col. Sir Tufton
Brinton, Sir Tatton
Cooke, Robert


Bell, Ronald
Brooke, Rt. Hn. Henry
Cordle, John


Bennett, Sir Frederic (Torquay)
Brown, Sir Edward (Bath)
Corfield, F. V.


Bennett, Dr. Reginald (Gos &amp; Fhm)
Bruce-Gardyne, J.
Costain, A. P.


Berkeley, Humphry
Bryan, Paul
Courtney, Cdr. Anthony


Berry, Hn. Anthony
Buck, Antony
Craddock, Sir Beresford (Spe[...]thorne)




Crawley, Aidan
Iremonger, T. L.
Price, David (Eastleigh)


Crosthwaite-Eyre, Col. sir Oliver
Irvine, Bryant Godman (Rye)
Prior, J. M. L.


Crowder, F. P.
Jenkin, Patrick (Woodford)
Pym, Francis


Cunningham, Sir Knox
Jennings, J. C.
Quennell, Miss J. M.


Curran, Charles
Johnston, Russell (Inverness)
Ramsden, Rt. Hn. James


Currie, G. B. H.
Jones, Arthur (Northants, S.)
Rawlinson, Rt. Hn. Sir Peter


Dalkeith, Earl of
Joseph, Rt. Hn. Sir Keith
Redmayne, Rt. Hn. Sir Martin


Dance, James
Kaberry, Sir Donald
Rees-Davies, W. R.


Davies, Dr. Wyndham (Perry Barr)
Kerr, Sir Hamilton (Cambridge)
Renton, Rt. Hn. Sir David


d'Avigdor-Goldsmid, Sir Henry
Kershaw, Anthony
Ridley, Hn. Nicholas


Dean, Paul
Kilfedder, James A.
Ridsdale, Julian


Deedes, Rt. Hn. W. F.
Kimball, Marcus
Roberts, Sir Peter (Heeley)


Digby, Simon Wingfield
King, Evelyn (Dorset, S.)
Robson Brown, Sir William


Dodds-Parker, Douglas
Kirk, Peter
Rodgers, Sir John (Sevenoaks)


Doughty, Charles
Lagden, Godfrey
Roots, William


Drayson, G. B.
Lambton, Viscount
Royle, Anthony


du Cann, Rt. Hn. Edward
Lancaster, Col. C. G.
St. John-Stevas, Norman


Eden, Sir John
Langford-Holt, Sir John
Scott-Hopkins, James


Elliot, Capt. Walter (Carshalton)
Legge-Bourke, Sir Harry
Sharples, Richard


Elliott, R. W.(N'c'tle-upon-Tyne,N.)
Lewis, Kenneth (Rutland)
Shepherd, William


Emery, Peter
Li[...]tchfield, Capt. John
Sinclair, Sir George


Errington, Sir Eric
Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfleld)
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Eyre, Reginald
Lloyd, Ian (P'tsm'th, Langstone)
Smyth, Rt. Hn. Brig. Sir John


Farr, John
Lloyd, Rt. Hn. Selwyn (Wirral)
Spearman, Sir Alexander


Fell, Anthony
Longden, Gilbert
Speir, Sir Rupert


Fisher, Nigel
Loveys, Walter H.
Stainton, Keith


Fletcher-Cooke, Charles (Darwen)
Lucas, Sir Jocelyn
Stanley, Hn. Richard


Fletcher-Cooke, Sir John (S'pton)
McAdden, Sir Stephen
Steel, David (Roxburgh)


Foster, Sir John
MacArthur, Ian
Stodart, Anthony


Fraser,Rt.Hn.Hugh(St'fford &amp; Stone)
Mackenzie, Alasdair (Ross&amp;Crom'ty)
Stoddart-Scott, Col. Sir Malcolm


Fraser, Ian (Plymouth, Sutton)
Mackie, George Y. (C'ness &amp; S'land)
Studholme, Sir Henry


Galbraith, Hn. T. G. D.
Maclean, Sir Fitzroy
Summers, Sir Spencer


Gammans, Lady
Macleod, Rt. Hn. Ialn
Talbot, John E.


Gardner, Edward
McMaster, Stanley
Taylor, Sir Charles (Eastbourne)


Gibson-Watt, David
McNair-Wilson, Patrick
Taylor, Edward M. (G'gow,Cathcart)


Giles, Rear-Admiral Morgan
Maginnis, John E.
Taylor, Frank (Moss Side)


Gilmour, Ian (Norfolk, Central)
Maitland, Sir John
Teeling, Sir William


Gilmour, Sir John (East Fife)
Marples, Rt. Hn. Ernest
Temple, John M.


Glover, Sir Douglas
Marten, Neil
Thatcher, Mrs. Margaret


Godber, Rt. Hn. J. B.
Mathew, Robert
Thomas, Sir Leslie (Canterbury)


Goodhart, Philip
Maude, Angus
Thomas, Rt. Hn. Peter (Conway)


Goodhew, Victor
Mawby, Ray
Thompson, Sir Richard (Croydon, S.)


Gower, Raymond
Maxwell-Hyslop, R. J.
Thorneycroft, Rt. Hn. Peter


Grant, Anthony
Maydon, Lt.-Cmdr. S. L. C.
Tiley, Arthur (Bradford, W.)


Gresham Cooke, R.
Meyer, Sir Anthony
Tilney, John (Wavertree)


Grieve, Percy
Mills, Peter (Torrington)
Turton, Rt. Hn. R. H.


Griffiths, Eldon (Bury St. Edmunds)
Mills, Stratton (Belfast, N.)
Tweedsmuir, Lady


Griffiths, Peter (Smethwick)
Miscampbell, Norman
van Straubenzee, W. R.


Gurden, Harold
Mitchell, David
Vaughan-Morgan, Rt. Hn. Sir John


Hall, John (Wycombe)
Monro, Hector
Vickers, Dame Joan


Hall-Davis, A. G. F.
More, Jasper
Walder, David (High Peak)


Hamilton, Marquess of (Fermanagh)
Morrison, Charles (Devizes)
Walker, Peter (Worcester)


Hamilton, M. (Salisbury)
Mott-Radclyffe, Sir Charles
Walker-Smith, Rt. Hn. Sir Derek


Harris, Frederic (Croydon, N.W.)
Munro-Lucas-Tooth, Sir Hugh
Wall, Patrick


Harris, Reader (Heston)
Murton, Oscar
Walters, Dennis


Harrison, Brian (Maldon)
Neave, Airey
Ward, Dame Irene


Harrison, Col. Sir Harwood (Eye)
Nicholls, Sir Harmar
Weatherill, Bernard


Harvey, John (Walthamstow, E.)
Nicholson, Sir Godfrey
Webster, David


Harvie Anderson, Miss
Noble, Rt. Hn. Michael
Wells, John (Ma[...]dstone)


Hastings, Stephen
Nugent, Rt. Hn. Sir Richard
Whitelaw, William


Hawkins, Paul
Onslow, Cranley
Williams, Sir Rolf Dudley (Exeter)


Hay, John
Orr, Capt. L. P. S.
Wills, Sir Gerald (Bridgwater)


Heald, Rt. Hn. Sir Lionel
Orr-Ewing, Sir Ian
Wilson, Geoffrey (Truro)


Heath, Rt. Hn. Edward
Osborn, John (Hallam)
Wise, A. R.


Hendry, Forbes
Osborne, Sir Cyril (Louth)
Wolrige-Gordon, Patrick


Higgins, Terence L.
Page, John (Harrow, W.)
Wood, Rt. Hn. Richard


Hill, J. E. B. (S. Norfolk)
Page, R. Graham (Crosby)
Woodhouse, Hon. Christopher


Hirst, Geoffrey
Pearson, Sir Frank (Clitheroe)
Woodnutt, Mark


Hobson, Rt. Hn. Sir John
Peel, John
Wylie, N. R.


Hogg, Rt. Hn. Quintin
Percival, Ian
Yates, William (The Wrekin)


Hopkins, Alan
Peyton, John
Younger, Hn. George


Hordern, Peter
Pickthorn, Rt. Hn. Sir Kenneth



Hornsby-Smith, Rt. Hn. Dame P.
Pike, Miss Mervyn
TELLERS FOR THE NOES:


Howard, Hn. G. R. (St. Ives)
Pitt, Dame Edith
Mr. McLaren and


Hunt, John (Bromley)
Pounder, Rafton
Mr. G. Johnson Smith.


Hutchison, Michael Clark
Powell, Rt. Hn. J. Enoch





NOES


Abse, Leo
Armstrong, Ernest
Baxter, William


Albu, Austen
Atkinson, Norman
Beaney, Alan


Allaun, Frank (Salford, E)
Bacon, Miss Alice
Bellenger, Rt. Hn. F. J.


Alldritt, Walter
Bagier, Gordon A. T.
Bence, Cyril


Allen, Scholefield (Crewe)
Barnett, Joel
Benn, Rt. Hn. Anthony Wedgwood







Bennett, J. (Glasgow, Bridgeton)
Hamilton, James (Bothwell)
Morris, John (Aberavon)


Binns, John
Hamilton, William (West Fife)
Murray, Albert


Bishop, E. S.
Hamling, William (Woolwich, W.)
Neal, Harold


Blackburn, F.
Hannan, William
Newens, Stan


Blenkinsop, Arthur
Harrison, Walter (Wakefield)
Noel-Baker, Francis (Swindon)


Boardman, H.
Hart, Mrs. Judith
Noel-Baker, Rt.Hn.Philip(Derby,S.)


Boston, T. G.
Hattersley, Roy
Norwood, Christopher


Boyden, James
Hazell, Bert
Oakes, Gordon


Braddock, Mrs. E. M.
Heffer, Eric S.
Ogden, Eric


Bradley, Tom
Henderson, Rt. Hn. Arthur
O'Malley, Brian


Bray, Dr. Jeremy
Herbison, Rt. Hn. Margaret
Oram, Albert E. (E. Ham, S.)


Broughton, Dr. A. D. D.
Hill, J. (Midlothian)
Orbach, Maurice


Brown, Rt. Hn. George (Belper)
Hobden, Dennis (Brighton, K'town.)
Orme, Stanley


Brown, Hugh D. (Glasgow, Provan)
Holman, Percy
Oswald, Thomas


Brown, R. W. (Shoreditch &amp; Fbury)
Horner, John
Owen, Will


Buchan, Norman (Renfrewshire, W.)
Houghton, Rt. Hn. Douglas
Padley, Walter


Buchanan, Richard
Howarth, Harry (Wellingborough)
Page, Derek (King's Lynn)


Butler, Herbert (Hackney, C.)
Howarth, Robert L. (Bolton, E.)
Paget, R. T.


Butler, Mrs. Joyce (Wood Green)
Howell, Denis (Small Heath)
Palmer, Arthur


Callaghan, Rt. Hn. James
Howie, W.
Pannell, Rt. Hn. Charles


Carmichael, Neil
Hoy, James
Park, Trevor (Derbyshire, S.E.)


Carter-Jones, Lewis
Hughes, Emrys (S. Ayrshire)
Parker, John


Castle, Rt. Hn. Barbara
Hughes, Hector (Aberdeen, N.)
Parkin, B. T.


Chapman, Donald
Hunter, Adam (Dunfermline)
Pavitt, Laurence


Coleman, Donald
Hunter, A. E. (Feltham)
Pearson, Arthur (Pontypridd)


Conlan, Bernard
Hynd, H. (Accrington)
Peart, Rt. Hn. Fred


Corbet, Mrs. Freda
Irvine, A. J. (Edge Hill)
Pentland, Norman


Cousins, Rt. Hn. Frank
Irving, Sydney (Dartford)
Perry, Ernest G.


Craddock, George (Bradford, S.)
Jackson, Colin
Popplewell, Ernest


Crawshaw, Richard
Janner, Sir Barnett
Price, J. T. (Westhoughton)


Cronin, John
Jay, Rt. Hn. Douglas
Probert, Arthur


Crosland, Rt. Hn. Anthony
Jeger, George (Goole)
Pursey, Cmdr. Harry


Crossman, Rt. Hn. R. H. S.
Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)
Randall, Harry


Cullen, Mrs. Alice
Jenkins, Hugh (Putney)
Rankin, John


Dalyell, Tam
Jenkins, Rt. Hn. Roy (Stechford)
Redhead, Edward


Darling, George
Johnson, Carol (Lewisham, s.)
Rees, Merlyn


Davies, G. Elfed (Rhondda, E.)
Jones, Dan (Burnley)
Reynolds, G. W.


Davies, Harold (Leek)
Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Rhodes, Geoffrey


Davies, S. O. (Merthyr)
Jones, J. Idwal (Wrexham)
Richard, Ivor


de Freitas, Sir Geoffrey
Jones, T. W. (Merioneth)
Roberts, Albert (Normanton)


Delargy, Hugh
Kelley, Richard
Roberts, Goronwy (Caernarvon)


Dell, Edmund
Kenyon, Clifford
Robertson, John (Paisley)


Dempsey, James
Kerr, Mrs. Anne (R'ter &amp; Chatham)
Robinson, Rt. Hn.K.(St. Pancras, N.)


Diamond, Rt. Hn. John
Kerr, Dr. David (W'worth, Central)
Rodgers, William (Stockton)


Dodds, Norman
Lawson, George
Rogers, George (Kensington, N.)


Doig, Peter
Leadbitter, Ted
Rose, Paul B.


Donnelly, Desmond
Ledger, Ron
Ross, Rt. Hn. William


Driberg, Tom
Lee, Rt. Hn. Frederick (Newton)
Sheldon, Robert


Duffy, Dr. A. E. P.
Lee, Miss Jennie (Cannock)
Shinwell, Rt. Hn. E.


Dunn, James A.
Lever, Harold (Cheetham)
Shore, Peter (Stepney)


Dunnett, Jack
Lever, L. M. (Ardwick)
Short,Rt.Hn.E.(N'c'tle-on.Tyne.C.)


Edelman, Maurice
Lewis, Arthur (West Ham, N.)
Short, Mrs. Renée (W'hampton,N.E.)


Edwards, Rt. Hn. Ness (Caerphilly)
Lewis, Ron (Carlisle)
Silkin, John (Deptford)


English, Michael
Lipton, Marcus
Silkin, S. C. (Camberwell, Dulwich)


Ennals, David
Lomas, Kenneth
Silverman, Julius (Aston)


Ensor, David
Loughlin, Charles
Silverman, Sydney (Nelson)


Evans, Albert (Islington, S.W.)
Mabon, Dr. J. Dickson
Skeffington, Arthur



McBride, Neil
Slater, Mrs. Harriet (Stoke, N.)


Evans, Ioan (Birmingham, Yardley)
McCann, J.
Slater, Joseph (Sedgefield)


Fernyhough, E.
MacColl, James
Small, William


Finch, Harold (Bedwellty)
MacDermot, Niall
Smith, Ellis (Stoke, S.)


Fitch, Alan (Wigan)
McGuire, Michael
Snow, Julian


Fletcher, Sir Eric (Islington, E.)
McInnes, James
Soskice, Rt. Hn. Sir Frank


Fletcher, Ted (Darlington)
McKay, Mrs. Margaret
Spriggs, Leslie


Fletcher, Raymond (Ilkeston)
Mackenzie, Gregor (Rutherglen)



Floud, Bernard
Mackie, John (Enfield, E.)
Stonehouse, John


Foley, Maurice
McLeavy, Frank
Stones, William


Foot, Michael (Ebbw Vale)
MacMillan, Malcolm
Strauss, Rt. Hn. G. R. (Vauxhall)


Ford, Ben
Mahon, Peter (Preston, S.)
Stross,SirBarnett(Stoke-on-Trent,C.)


Fraser, Rt. Hn. Tom (Hamilton)
Mahon, Simon (Bootle)
Summerskill, Hn. Dr. Shirley


Freeson, Reginald
Mallalieu,J.P.W.(Huddersfield,E.)
Swain, Thomas


Galpern, Sir Myer
Manuel, Archie
Swingler, Stephen


Garrett, W. E.
Mapp, Charles
Symonds, J. B.


Garrow, A.
Marsh, Richard
Taverne, Dick


George, Lady Megan Lloyd
Mason, Roy
Taylor, Bernard (Mansfield)


Ginsburg, David
Maxwell, Robert
Thomas, George (Cardiff, W.)


Gourlay, Harry
Mayhew, Christopher
Thomas, Iorwerth (Rhondda, W.)


Greenwood, Rt. Hn. Anthony
Mellish, Robert
Thomson, George (Dundee, E.)


Gregory, Arnold
Mikardo, Ian
Thornton, Ernest


Grey, Charles
Millan, Bruce
Tinn, James


Griffiths, David (Rothcr Valley)
Miller, Dr. M. S.
Tomney, Frank


Griffiths, Rt. Hn. James (Llanelly)
Milne, Edward (Blyth)
Tuck, Raphael


Griffiths, Will (M'chester, Exchange)
Molloy, William
Urwin, T. W.


Gunter, Rt. Hn. R. J.
Morris, Alfred (Wythenshawe)
Varley, Eric G.


Hale, Leslie
Morris, Charles (Openshaw)
Wainwright, Edwin







Walden, Brian (All Saints)
Whitlock, William
Wilson, William (Coventry, S.)


Walker, Harold (Doncaster)
Wigg, Rt. Hn. George
Winter bottom, R. E.


Wallace, George
Wilkins, W. A.
Wyatt, Woodrow


Warbey, William
Willey, Rt. Hn, Frederick
Yates, Victor (Ladywood)


Watkins, Tudor
Williams, Alan (Swansea, W.)
Zilliacus, K.


Weitzman, David
Williams, Clifford (Abertillery)



Wells, William (Walsall, N.)
Williams, W. T. (Warrington)
TELLERS FOR THE NOES:


White, Mis. Eirene
Willis, George (Edinburgh, E.)
Mr. Ifor Davics and Mr. Harper.

Mr. MacDermot: I beg to move, Amendment No. 647, in page 202, line 14, to leave out sub-paragraph (2).
The Amendment paves the way for the new Schedule, because the provisions of the sub-paragraph are transferred in a slightly amended form to that part of the new Schedule which deals with overspill relief for overseas trading corporations.

Amendment agreed to.

Schedule, as amended, agreed to.

Schedule 16 agreed to.

Schedule 17.—(SUPPLEMENTARY PROVISIONS ABOUT CLOSE COMPANIES.)

Mr. van Straubenzee: I beg to move Amendment No. 472, in page 207, line 26, to leave out
or of participators who are directors".

The Temporary Chairman: With this Amendment the Committee should discuss Amendment No. 473, in page 207, line 41, to leave out
or among participators who are directors".

Mr. van Straubenzee: The world outside will take a very jaundiced view of important provisions in this Schedule being dealt with by the Committee at 1.25 a.m. after the Committee sat until 3.15 a.m. yesterday. But I want to make it clear that my hon. and right hon. Friends who have been studying these matters are quite prepared to give them careful attention for as long as is required. [HON. MEMBERS: "Hear, hear."] Since we appear to be agreed on that, let us get on with the job.
This brings us to Schedule 17, and the definitions of a close company. Subparagraph (1) as drafted brings in any company of which the directors and their associates have control. I think that it is important to clear up one misapprehension before we go any further. There is a widespread feeling throughout the country that the definition of a close company by the provisions of this Schedule means a company controlled by five or fewer people. This is not

so, and this point is brought out by the Amendment. In fact, because of the combination of this Schedule and other parts of the Bill, and particularly the definition of the word "associate", a great many more people than that can be brought in, and it is as well that the world outside should appreciate that point.
The object of the Amendment is to remove the provisions by which a company becomes a close company if it is controlled by participators who are directors. It retains—and this is an important point to make—the provision that if a company is under the control of five or fewer participators then it remains a close company.
Let me give an example of the sort of thing that I have in mind. If a company of this kind had eight directors, it would not be affected by the first part of the provision, but they might easily, by virtue of the definition of "associates", control 51 or more per cent. of the company, with the rest of the shareholdings widely scattered. This is a possible combination. The Clause as drafted would bring a company of that kind within the close company provisions. I suspect that the reasoning behind the Clause as at present drafted is based on the director-controlled company provisions for Profits Tax purposes, namely, the restriction on directors' remuneration to which Clause 69 refers.
I draw the attention of the Committee to the fact that the Surtax legislation did not contain a reference to control by directors, and we on this side of the Committee are seeking to say that that is the precedent which should be followed, and that we should retain the purpose and object of the legislation by the provision of control by a small number of persons as defined by the Bill, and it need not be by reference to their being directors.
In deference to the other side of the Committee, I have sought at this late


hour to move the Amendment as briefly as possible.

Mr. Diamond: The hon. Gentleman has made his point with his usual clarity. I think, however, that the Committee would be well advised to leave the Schedule as it stands. The hon. Gentleman will recollect that under the present law there are in effect two definitions, admittedly for different purposes. One deals with a company which is controlled by its directors, and we have to have that in connection with the maximum allowances for directors' remuneration in computing profits for Profits Tax purposes. The other one is the more usual one, the control by five or fewer persons which we have to have regard to in dealing with company Surtax.
1.30 a.m.
This Bill, adopting the argument of simplicity which has been mentioned before, prefers one definition which is clearer, more easily to be remembered and, if I may say so, does not cause any hardship of any kind, even having regard to the Amendment which the hon. Gentleman himself moved.
I can think of very, very few cases—there must be an extraordinarily small number of cases—of companies which are controlled by their directors but not controlled by five or fewer participators within the Corporation Tax meaning of that term. Having regard to the fact that the Amendment would affect, as far as I can see, very, very few companies, having regard to the fact that the definition in the Bill is straightforward and simple, and having regard to the fact that the close companies in any event are merely subject to this slight temporary inconvenience that they have to satisfy the inspector of taxes in certain cases that they are concerned to put by reserves for the development of their business and are not concerned to use their resources as cash boxes in which their profits shall lie, I do not think the Committee would be well advised to accept this Amendment.

Mr. Barber: I think that the proposals in the Bill, as contrasted with the terms of the 1952 Act, present to the Committee a retrograde step. The Chief Secretary has admitted that the definition of

a director-controlled company is necessary for one particular purpose, and that the definition of what I might loosely call the Surtax company was required for another purpose. He has brought the two together because he thinks this is tidy, but he has admitted to the Committee that by doing this there will be a few companies, albeit not many, which, as my hon. Friend has pointed out, are controlled by directors but not within the definition of a company controlled by five or fewer persons.
We can see perfectly well why, in line with the proposals already accepted by the Committee, whether one agrees with them or not, the fact that a company is a director-controlled company has some relevance to those provisions dealing with directors' remuneration. I agree with my hon. Friend entirely that these considerations are not relevant for determining whether or not a company is a close company. The comparable provisions in the 1952 Act are contained in Section 256, which says:
Section two hundred and forty-five of this Act shall apply to any company which is under the control of not more than five persons and which is not a subsidiary company or a company in which the public are substantially interested.
There is no reference to director-control there. My hon. Friend is perfectly right when he says the provision concerning shortfalls should apply only to close-controlled companies. This is what most people in the country thought Clause 72 would apply to. These provisions should not apply to a company merely because it is director-controlled.
I should give notice that unless the hon. Gentleman can tell us that he will have a look at this again and look into these cases of the few companies to which he referred and which will be affected by this, we shall want to return to this Amendment on Report stage.

Mr. Patrick Jenkin: I want to put one point to the Minister. It is quite possible for any company which is not controlled by more than five people, but is a director-controlled company, to take itself out of the provision by making sure that the relevant individuals are not made directors. When I was practising at the Bar some years ago I remember asking a client, "Are you a director of a company?" and his saying, "Good heavens,


no. Nobody is a director of a company these days. You incur all sorts of penalties." These people who stand behind companies can obviously use their influence in cne way or another and yet avoid the penalties by simply not being directors.
Surely the tax situation should not be used as a reason for putting a cloak round the management of a company. It is desirable in the public interest that everybody should know who is running a company, and all sorts of duties are imposed under the Companies Acts on people who are directors. Their obligations are wide and varied, and they are subject to stringent penalties for not complying. It is therefore desirable that there should be an incentive to encourage people to declare their directorships openly.
The Chief Secretary is not telling the full story when he says that it is a question of directors' remuneration. It is not; it is a question of the disallowance of loan interest and disallowance of deductions for property other than tangible property. It is not only a question of ploughback for Income Tax; it is also a question of Surtax. All the things that follow from a company being a controlled company are intended to affect companies which are closely within the control of five or fewer people.
To extend the provisions to companies which are in the control of substantially greater numbers, merely because they are directors, is extending it beyond reasonable limits. Therefore I warmly support the Amendment, and hope that the Government will give it sympathetic consideration.

Amendment negatived.

Mr. Barber: I beg to move Amendment No. 362, in page 208, line 9, at the end to insert:
(4) A company is not to be treated as a close company if the public are substantially interested in it and the public shall be deemed to be substantially interested in a company if shares of the company (not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) carrying not less than 25 per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by, and are at the end of the relevant accounting period beneficially held by the public and any such shares have in the course of such year or other period been the subject of dealings on a stock exchange in the United Kingdom

and the shares have been quoted in the official list of such a stock exchange.

The Chairman: With this Amendment we can take Amendment No. 230, in page 207, line 34, at end insert:
(d) to a company authorised to make a return as a bank to the Inland Revenue.
Amendment No. 461, in line 34, at end insert:
(d) to a banking or discount company as defined in paragraph 23(3) of the Eighth Schedule to the Companies Act 1948.
Amendment No. 596, in line 34, at end add:
(d) to a company the ordinary shares of which are quoted on any stock exchange.

Mr. Barber: Yes, Dr. King. We come now to what I suppose is the most important single Amendment since we completed Clause 79 some hours ago—an Amendment which deals with the definition of a close company. Although the issue is important it is not difficult to comprehend. I can best put the matter in this way: the provisions of the Bill impose on close companies most stringent obligations, and in certain circumstances may increase the liability to tax, on both the close company and the shareholder, by what can fairly be described as a near-penal extent.
I do not dispute that some provision should be made in respect of closely controlled companies, but my hon. Friends and I are resolutely opposed to the Chancellor's definition of a close company, which, let it be marked, brings within the ambit of these stringent and frequently restrictive provisions the great majority of British companies on which the prosperity of our people depends.
Now this is a major change from the existing position under the Income Tax Act, 1952. That is why it is of such importance. What is most significant is that it is a change which has nothing whatever to do with Corporation Tax. We say that, whatever its merits, this is a deliberate move by a Socialist Government to give the Inland Revenue much greater control over the commercial and financial decisions of the great majority of British companies. One cannot emphasise too greatly the importance of this move—the significance of it.
The Amendment is almost self-explanatory. It would exclude any company in


which the public is substantially interested; that is to say, where not fewer than 25 per cent. of the shares are held by the public. There are two main reasons why we are opposed to the Chancellor's definition, and the first is that the various provisions governing close companies which we have discussed at length will be wholly inappropriate for very many of our great public companies which will now be caught in this net. I am thinking of the control over the allowable remuneration of managerial and technical directors and the disallowance of loan interest to a participator—to which reference has just been made—and the provisions which the Chancellor has laid down for distribution policy which are, at once, detrimental to the future of those companies and completely in conflict with the Chancellor's avowed intentions of encouraging retentions.
Secondly, as a simple matter of practice, this just will not work. The law governing what we will call Surtax companies is difficult enough, but now the situation will become not only vastly more difficult, but ludicrous. Unless our Amendment is accepted, dealings on the Stock Exchange which are quite disconnected will have the effect of moving companies in and out of the close company definition; and this will happen through no fault of the company and, indeed, without the knowledge of the directors. The provisions of this Schedule providing, in effect, that nominee holdings and share options are to be treated as the holdings of those people beneficially entitled, and this will make a mockery of the underlying principle which the Chancellor has adumbrated that the board of directors are supposed to know if their company is or is not a close company.
The utterly ludicrous nature of the provisions does not end there. Let me give the Committee an instance of what will happen. Let us take a company where the shares are held as follows—and I hope that the Chief Secretary will make special note of this. The shares are held in the proportion of 11 per cent. by "the family", 40 per cent. by four institutional investors—let us say banks, insurance companies, and so on—and 49 per cent. by 10,000 small investors. These are shares ob-

tained on the Stock Exchange or on public offer. The company is, therefore, under the control of five persons; the members of the family being treated as one person, and each of the four institutional investors and, since the institutional investors have not control of the company, it will not be excluded from the definition in this Schedule of a close company.
1.45 a.m.
If this company fails to make what the Inland Revenue considers to be a sufficient distribution, the shortfall will be apportioned as follows. First, the inspector will have to obtain particulars of the total income of each member of the family, and, remarkable and almost fantastic though it may sound, of each of the 10,000 small holders. Very few of these will be making Income Tax returns in the district of the inspector of taxes concerned. Therefore, he will have to obtain particulars in each of the 10,000 cases from the respective tax districts throughout the country, which number, between 1,000 and 2,000. What could be more nonsensical than this? Yet this is the sort of practical consequence which could follow from the right hon. Gentleman's proposal which, in our view, is inept and inappropriate. It is a proposal which we believe, in the case of these companies which are for the first time brought within this net, will hinder modernisation and deter technological advance, which is the avowed aim of the Government. It is a proposal which ignores the practical difficulties and consequences. In short, it is a typical Socialist proposal.
Because the Government are in difficulties with their Parliamentary programme, this most important Amendment, on which there has been considerable comment and a great deal of criticism in all sections of the Press, is being taken at a quarter to two in the morning. I again give notice that, because this Amendment is of such importance and because it merits full discussion at a reasonable hour of the day, because there is great public interest in this, we shall, naturally, listen to what the Government Chief Secretary has to say tonight, but if we are not satisfied—bearing in mind the hour of the night—we shall certainly wish to return to this important matter when we come to Report stage.

Mr. Diamond: In view of what the right hon. Gentleman has said, I think that it would be convenient if I were to reply immediately. I shall reply shortly. The right hon. Gentleman will not, of course, mind my saying that it was open to him, had he preferred to have the discussion at another time, to have withdrawn the Amendment. That is no doubt something which the Chair will take into account when it makes its selection at a later stage. I mention this only because it is well within the recollection of both Front Benches that this is a practice which has frequently been adopted at this stage when getting towards the end of the Committee stage—to withdraw Amendments which could well be usefully considered during Report stage, if the Chair thought fit so to do.

Mr. Barber: There is one difficulty about that. If I had withdrawn the Amendment we should never even have heard the Government's view on this. I recollect that very little has been said in the past—in Budget debates or anywhere else—about this important proposal. If we had withdrawn our Amendment at this stage and put it down again on Report, and it had then been shown to be technically inaccurate in some way or other, we should have been in the greatest difficulty in getting it accepted.

Mr. Diamond: These are, of course, all valid considerations. It is my duty to explain the Government's view, to the extent that it has not already been explained in speeches and indications by my right hon. Friend and in the White Paper and in the Bill itself.
It is not to be denied that the net now goes wider than it did before. The reason is perfectly simple—the need to protect the Revenue is greater now than it was before, because the avoidance of tax by inadequate declaration of dividend has a greater impact on the Revenue than it did before, and also because it is part of my right hon. Friend's desire, in framing the Corporation Tax, to encourage investment which does not mean retention, it means investment. The word implies using funds which are either needed for the business, in which case they are invested, or, if not needed, distributed, so that the recipients of the dividends can decide—as the right hon. Gentleman explained at an earlier stage

—into which other companies the money could be more usefully and fruitfully employed. That is part of my right hon. Friend's intention, and that is why the Corporation Tax is introduced and why we have this consequence of the need to widen the net.
There are no major difficulties whatever for the company which finds itself a close corporation. If it is concerned to expand its business, not to avoid tax in the way indicated, it will have my right hon. Friend's full support and encouragement. This is what the Bill is for. It is quite wrong for the right hon. Gentleman to say that this provision goes against the Chancellor's desire for companies to expand. Quite the contrary. We have made the position clear so many times.
I have demonstrated time and again how it will be for the convenience of the taxpayer to be dealt with not particularly on a Surtax matter but on tax matters by inspectors of taxes and how the procedure will be made homogeneous all over the country, the great expertise and knowledge which previously resided in the special commissioners being spread through he whole country through the agency of the inspectors of taxes. Time and again, we have been over the real purpose here—either invest or distribute, but in no circumstances retain. It is not right to suggest that my right hon. Friend's point of view as regards close companies is different from his view on open companies. His desire is that every company should expand, increase its capacity to produce, and spend its funds for that purpose if it can find a fruitful outlet for them.
The right hon. Gentleman now produces a new argument and says that our proposal will not work, that there will be a ridiculous situation on the Stock Exchange where, completely outside the control of the company, shares will be bought and sold on the public market and the directors will not know from day to day whether control is so placed that they are a close corporation. In short, of course, it will be a situation exactly the same as it is now, which has gone on for years and years under the right hon. Gentleman's own Government under the 25 per cent. for Surtax companies. For the Surtax company, which is what we are making the comparison with, there


was a let-out if it had 25 per cent. public participation. The complaint is that this no longer applies. From day to day, shares could come and go; yet we have managed to live with that situation, and in the same way we shall manage to live with the new situation.
The right hon. Gentleman and his Government made a practical limitation, and it worked perfectly well. All we say is that we have found out—the previous Government knew this just as well as we do—that the 25 per cent. did not fully serve its purpose of protecting the public purse. There is a sufficient number of examples of cases where the 25 per cent. has been used in order to avoid the provisions of the Surtax direction. It was an avoidance of the Surtax direction—no more and no less—in quite a number of cases. It can no longer be done.
There is no need to have difficulties at all. The present definition will work. We are not importing new difficulties. Any company which is concerned to expand and get on with its business need have no worries on this score. I cannot recommend the Committee to accept the Amendment.

Mr. Barber: The Committee will agree that for a subject of this importance we have had a very short debate so far. I referred earlier to the disadvantage of continuing a long debate at this hour of the morning. I do not know—it is not for me to influence my hon. Friends or hon. Members opposite who may wish to contribute—but I wonder whether my hon. Friends might think, because of the importance of the subject, that it might be as well if we were to let the matter pass at this stage. Perhaps I might ask leave to withdraw the Amendment, in the hope that, bearing in mind the hour and the fact that we have had a debate of only 15 minutes or so, Mr. Speaker would take these matters into account when considering which Amendments he wished to select on Report.
I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Peyton: I beg to move Amendment No. 679, in page 208, line 14, at the end to insert:

3. For purposes of the provisions of this Act relating to close companies, the Crown and any department of the Crown and any person holding shares on behalf of the Crown or any department of the Crown shall not be treated as a participator.
I can move it shortly, and do so in the hope, which is now constantly with me, that the Treasury Ministers cannot but see the reason, justice and correctness in any Amendment which I move. This may be optimistic, but we have here a rather ridiculous position. At least, we have an uncertainty. At the moment it would appear that any company which is 51 per cent. owned by the British Government is likely to be a close company. I cannot believe that this is the intention of the Government. It would have the absurd result that a huge international concern such as British Petroleum would become a close company. This is too fantastic to contemplate. I do not believe that it can be the Government's intention.
The Amendment would, I think, be a satisfactory way of remedying the situation. If the Government do not like this way, I hope they will choose another. It is a very foolish position that because 51 per cent. of the shares of a company are registered in the name of the Treasury Solicitor he and the British Government should be treated as one participator and this absurd result should follow of the company being treated as a close one. I hope that the Government will accept the Amendment or table an acceptable alternative on Report.

Mr. Diamond: The hon. Member for Yeovil (Mr. Peyton) is right. As the Bill is drawn, companies of this kind, nationalised industries and companies in which the Crown has 51 per cent. of the shares, are covered. It did not seem at first sight as if there was any reason why they should not be covered because the main purpose of close corporations is to prevent tax avoidance and it is inconceivable that the Crown should be concerned in getting up to schemes to avoid paying its tax.
But I realise that there is force in what the hon. Gentleman has said, and if it were the wish of the Committee that companies of this kind should not be covered by the legislation, I would certainly be only too glad to look into it. Therefore, if the hon. Gentleman will be


good enough not to press the Amendment I will give an undertaking that the matter will be looked at before Report, without necessarily any commitment about what will be put forward by the Government at that stage.

Mr. Peyton: I am obliged to the right hon. Gentleman for what he has said. I am advised that it is extremely difficult for companies of this kind to operate within the framework of close companies. I hope that the right hon. Gentleman will go even a little further than he has done. But on that basis I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Diamond: I beg to move Amendment No. 724, in page 208, line 34, at the end, to insert "or".
This Amendment and the immediately following one are to correct typing errors whereby a word was omitted.

Amendment agreed to.

Amendment made: In page 208, line 47, after "may", insert "be".—[Mr. Diamond.]

2.0 a.m.

Mr. George Y. Mackie: I beg to move, Amendment No. 595, in page 209, to leave out lines 23 to 27.

The Chairman: We shall consider at the same time Amendment No. 669, in page 209, line 23, after "person", insert
except the Agricultural Mortgage Corporation and the Lands Improvement Company".
Amendment No. 670, in page 209, line 23, leave out "the company" and insert
a company not principally engaged in agriculture or forestry or the letting of agricultural or forestry land".
Amendment No. 770, in page 209, line 26, leave out "of banking".
Amendment No. 518, in page 209, line 27, at end insert
or in good faith at a reasonable commercial rate of interest".
Amendment No. 771, in page 209, line 42, after "borrowed", insert
otherwise than in the normal course of business".
Amendment No. 772, in page 209, line 42, after "acquired", insert
otherwise than in the normal course of business".

Amendment No. 474, in page 209, line 49, at end insert—
Provided that a creditor in respect of a loan for full value received by the company and at a commercial rate of interest shall not be a loan creditor for the purposes of sub-paragraph (1) above.

Mr. Mackie: This is a simple Amendment. We think that this provision will lead to the ludicrous position in which anyone who wishes to back someone in a company and lends money quite innocently with no evil intent will immediately become a participator and subject to all the penalties thereafter. We come back again to the company starting up and to the entrepreneur whom we believe is very important. It very often happens that a young man or a group of young men starting a company are backed by someone whose motives are more kindly than commercial. With that simple explanation and because this is only commonsense, I move the Amendment.

Mr. Diamond: I am sorry that I cannot advise the Committee to accept the Amendment. I am sure that the hon. Gentleman appreciates that in tax avoidance it has been found that instead of a company being controlled by its shareholders it becomes controlled by loan capital. There is little difference, as we know. It can be financed by share capital or by loan capital. If the door is closed as far as the holder of share capital is concerned the alternative is to deal with it by way of loan creditors and one has, therefore, to treat them in the same way.
I do not know whether the hon. Gentleman has any particular case in mind. If he has I would be glad to consider it if he would write to me about it. On the general test, however, I could not recommend the Committee to accept the Amendment.

Sir Martin Redmayne: May I draw the right hon. Gentleman's attention to Amendment No. 669, standing in my name? It would
except the Agricultural Mortgage Corporation and the Lands Improvement Company.
These surely cannot come under the heading the right hon. Gentleman describes. I cannot think that for this purpose it would be the wish of the Government to include them.

Mr. Diamond: The answer to that point is that Amendments Nos. 693 and 694 to Schedule 10, in the name of my right hon. Friend the Chancellor of the Exchequer, will allow low interest paid by close companies to be deductible unless it is paid to a director of the company or to an associate of such a director.

Mr. James Scott-Hopkins: I am grateful to the right hon. Gentleman for what he has said but I do not follow how those Amendments to Schedule 10 will allow any such body as the Agricultural Mortgage Corporation to qualify for the purpose of Corporation Tax. As I understand the situation, it is only banking and banking interests that will qualify.

Mr. Diamond: The hon. Gentleman is describing the situation as it existed before my right hon. Friend decided on this change. We have now widened the matter very considerably. The present position is that helpful loans to directors or through an associate are, in effect, treated as loans of participators.

Amendment negatived.

Mr. Diamond: I beg to move Amendment No. 740, in page 210, line 13, at the end to insert:
and 'relative' including a husband or wife)".
The Amendment makes it clear that "relative" in line 9 includes husband or wife and is not limited to the blood relations mentioned in lines 5 and 6.

Amendment agreed to.

The Chairman: I understand that Amendment No. 84 in the name of the right hon. Member for Orkney and Shetland (Mr. Grimond) has been withdrawn.

Mr. Diamond: I beg to move, Amendment No. 726, in page 211, line 43, to leave out from "period" to the second "of" in line 44.
This Amendment deals with words accidentally left in from an earlier draft of the Bill which referred to a category of income no longer used in the Bill.

Amendment agreed to.

Mr. Diamond: I beg to move, Amendment No. 718, in page 211, line 46, at the end to insert:
and, in determining the amount for any period of any description of income, any deduction from the company's profits for charges

on income, expenses of management or other amounts deductible from profits of more than one description shall be treated as made from such profits, and in such proportions from those profits, as is appropriate".
The relevant part of these words is in the final lines—
and in such proportions…as is appropriate.
The Amendment provides for the appropriate apportionment of a close company's outgoings between trading income and investment income. This apportionment has to be made because different rules apply to the distribution of investment income, which has to be distributed as to 100 per cent., and trading income. Therefore, when there are expenses which are common to both the earning of the trading income and the earning of investment income, there has to be an apportionment.
The Bill as it stands gives no guidance as to the allocation between trading and investment income on items such as bank interest, directors' fees and other outgoings which relate to the company's activities as a whole. It is not possible to lay down any hard and fast rules for such allocation and the Amendment follows the existing law in providing for it to be done as may be appropriate in the circumstances of each case. If there is disagreement, the usual right of appeal will apply.

Amendment agreed to.

Mr. Diamond: I beg to move, Amendment No. 719, in page 212, line 3, at the end to insert:
company which exists wholly or mainly for the purpose of carrying on a trade and any other".

The Chairman: With this we can take Amendment No. 476, in page 212, line 4, leave out from "company" to "which" in line 5 and insert:
which carries on a trade other than the holding of investments the income from".
and Amendment No. 477, in page 212, line 13, at end insert:
(a) it carries on a trade and has under its control one or more companies; or

Mr. Diamond: This Amendment will ensure that financial institutions, like banks and discount houses, which are close companies will be treated as trading companies and not as investment companies for the purposes of the close company provisions, even though their income


may consist wholly or mainly of investment income. As I have already said, it is the normal provision that where a company is solely concerned with earning investment income 100 per cent. of it has to be distributed, for the very good reason that it does not need any reserves. But where a close company is carrying on the business of a bank or discount house, clearly it needs reserves for liabilities of a kind about which we have already heard. The simple way is to treat these as trading companies and all the normal provisions with regard to trading companies would apply.

Mr. Patrick Jenkin: Although the hour is late I cannot forbear making the comment that here is but one more Amendment which reflects exactly what was put down by hon. Member's on this side of the Committee earlier. Of course it must be that the test of whether a company is a trading company or an investment company should turn on what is the purpose for which the company has been formed and not purely on the nature of the company's income. Were it otherwise one would have the ludicrous situation that a company which had investment income could in certain years suddenly turn into an investment company because its income would be mainly from its investment and if the income from the trade fell away that would be a completely nonsensical situation. It is not only Amendment No. 632 which has now been overtaken by the Chancellor's Amendment. I would like to give notice on this point that Amendment No. 478 is covered by the same point and will not now be moved.

Amendment agreed to.

Mr. Diamond: I beg to move Amendment No. 711, in page 213, to leave out lines 13 to 21.
This is purely consequential.

Mr. van Straubenzee: May I make a very brief point? This point is covered by Amendment 465 of Clause 72 tabled by the Opposition.

Amendment agreed to.

Mr. Diamond: I beg to move Amendment No. 720, in Schedule 17, page 213, line 21, at the end insert:
10A.—(1) A close company may, at any time after the general meeting at which the accounts

for any period of account are adopted, forward to the inspector a copy of those accounts, together with a copy of the report, it any, of the directors for that period, and such further information, if any, as it may think fit, and may request the inspector to proceed under this paragraph in relation to any accounting period comprised in that period of account:
Provided that this sub-paragraph shall not apply if the company is neither a trading company nor a member of a trading group and has no estate or trading income.
(2) Where the inspector receives a request made in accordance with sub-paragraph (1) above in relation to any accounting period, then subject to sub-paragraph (3) below he shall, within three months after receipt of the request, intimate to the company whether or not he proposes to make an assessment on the company in respect of the accounting period under section 72 of this Act.
(3) On receiving a request made in accordance with sub-paragraph (1) above the inspector may, not later than three months after receipt of the request, call on the company to furnish him with such further particulars as he may reasonably require; and if he does so, the time for giving the intimation required by subparagraph (2) above shall not expire before three months after he has been furnished with those particulars.
(4) Where the inspector receives a request made in accordance with sub-paragraph (1) above in relation to any accounting period, and does not within the time limited by sub-paragraphs (2) and (3) intimate his intention to make an assessment in respect of the period, no such assessment shall be made unless either—

(a) the information accompanying the request, and any further particulars furnished to the inspector in connection therewith, are not such as to make full and accurate disclosure of all facts and considerations which are material to be known to the inspector; or
(b) within twelve months of the end of the period paragraph 11 or 12 below has effect in relation to the company".

This Amendment removes any uncertainty as to whether a company dividend is going to be questioned for Income Tax and Surtax purposes. The Chancellor takes the view that it is wise in all possible cases that there should be certainty instead of uncertainty and it has been represented that there might have been uncertainty in certain cases. This procedure has therefore been adopted. It is a procedure which is familiar to most members of the Committee and is, broadly, that which existed for company Surtax purposes. There are one or two appropriate differences from that procedure. One is that the application for clearances will he dealt with by tax inspectors and not by the Surtax office. This is fully appropriate because we


shall mainly be dealing now with tax and tax avoidance rather than Surtax avoidance. Another difference is that three months instead of one month is allowed to the inspector to ask for further information when he has received an application for a clearance.
2.15 a.m.
The final major difference is that there is no provision for the issue of a second formal notice which under the present law must be issued within six months after a notification that the Surtax Office intends to take action. One month has been found to be too short a period in which to decide what further information is needed in order to know whether there is a shortfall to be decided. It is this kind of removal of uncertainty which is what the Committee wanted, and therefore I hope that the Amendment is acceptable.

Mr. William Clark: The Chief Secretary was a little ungenerous when he said that there was widespread feeling about the question of clearance. What he should have said was that there was widespread feeling among members of the Opposition and that he had been impressed by the initiative of my right hon. Friend and hon. Friends in having tabled this Amendment first.
One thing which I cannot understand is this. When we were discussing Clause 72. the shortfall Clause, the Minister who replied said that a part of the Schedule had been lifted into the Clause for the simple reason that it had not been noticed in the Schedule. I cannot see why we are tucking such a large bit away in this Schedule. In view of the fact that the Chief Secretary, I am sure, would pay tribute to the initiative of my right hon. and hon. Friends, we do not oppose this Amendment.

Amendment agreed to.

Further Amendments made: In page 213. line 31, at end insert:
and without any deduction in respect of the requirements of the business".
In page 213, line 33, leave out from "and" to "that" in line 37, and insert "the company shows".
In page 213, line 39, leave out from "below)," to end of line 42 and insert:

then for purposes of section 72 of this Act so much of the shortfall as the company shows could not be avoided without prejudice to those claims shall be disregarded".
In page 213, line 45, leave out "(5)," and insert "(4)".
In page 214, line 25, leave out "continues to carry" and insert "carries".
In page 215, line 29, leave out from first "to" to end of line and insert:
Chapter III of Part IX of that Act of a reference to section 73".—[Mr. Diamond.]

Mr. Diamond: I beg to move Amendment No. 728, in page 215, line 35, after "is", to insert:
at any time in the year".
This Amendment and the following one, No. 729, in line 37, correct an oversight in drafting, which I can happily explain if the Committee so desires. If it does not, I will leave it at that.

Amendment agreed to.

Further Amendment made: In page 215, line 37, after "participators", insert "then".—[Mr. Diamond.]

Mr. Diamond: I beg to move Amendment No. 730, in page 215, line 38, at the end, to insert:
(2) In relation to the year 1966–67 and later years of assessment—

(a) in section 412(8)(d) of the Income Tax Act 1952 (which provides for amounts apportioned to a person under Chapter III of Part IX of that Act to be treated as his income for certain purposes) for the words "under Chapter III of Part IX of this Act" there shall be substituted the words" section 73 of the Finance Act 1965"; and
(b) in section 414(4) of that Act (which relates to the information a solicitor may he required to furnish under that section about transactions resulting in transfers of income to persons abroad) for the words from The bodies corporate" onwards there shall be substituted the words—

The bodies corporate mentioned in the preceding provisions of this section are bodies corporate resident or incorporated outside the United Kingdom which are, or if resident in the United Kingdom would be, close companies, but not trading companies, within the meaning of Part IV of the Finance Act 1965".
There are several references in the Income Tax Act, 1952, to a company to which Section 245 applies—that is, a company subject to Surtax apportionment. All these references have to be changed to references to close companies.


These Amendments pick up two which were overlooked.

Amendment agreed to.

Mr. Diamond: I beg to move Amendment No. 706, in page 215, line41, after "included", to insert "as regards surtax".
Paragraph 14(2) of the Schedule provides that if part of the income of a company is apportioned to the members for Surtax purposes under Clause 73 and part of the amount is apportioned to the administrators of a deceased person's estate, it is to be treated as part of the income of the estate under the relevant part of the Income Tax Act, 1952, so as to attract Surtax where appropriate.
It is, however, possible that the paragraph could be taken to mean also that the beneficiaries could claim repayment of the Income Tax in respect of the amount apportioned to the estate. This would be wrong, since the shareholders themselves cannot make any such claim in respect of an apportionment under Clause 73. The Amendment makes the position clear and makes it clear that only Surtax is affected.

Amendment agreed to.

Question proposed, That this Schedule, as amended, be the Seventeenth Schedule to the Bill.

Mr. Stratton Mills: I wish briefly to refer to a small but important point on paragraphs 11 and 12 dealing with the cessation of trade and liquidation of a company. In these paragraphs, it is required that when a company ceases to trade in its main trade, it is to distribute the whole, and not merely 60 per cent., of the profits for its last trading year; and no deductions are allowed for the requirements of the businesss, which, in the nature of things, is fair enough as the business is ceasing.
That is, however, a purely superficial view of the situation. As the company has no further need to expand, the rules at first sight appear to be reasonable, but an important change is taking place from the position under the old law. Under the old law, the automatic Surtax direction wiped out the charge to Profits Tax, but under the new system this involves double taxation of distributed income. I hope that the Chief Secretary has taken

the point. I could give a number of examples by comparing the two situations, but the hour is late. I content myself with saying that this involves quite considerably more tax against a company in its last year of trading under paragraphs 11 and 12.
I suggest that the system of Corporation Tax in the Bill is designed to benefit the company with high retentions and to penalise those which distribute, but in the last year of trading such a measure brings in double taxation and is, therefore, penal in its incidence. I hope that if the Chief Secretary has not had an opportunity to look carefully into the point, he will consider it before Report.

Mr. Patrick Jenkin: It must have been with some concern that hon. Members who are standing at the Bar and sitting on the Government back benches listened to the long tally of Government Amendments moved to this Schedule, most of them Amendments reflecting exactly the points contained in Amendments tabled by hon. Members on this side of the Committee, and so I hope that we are not going to hear any more of the suggestion which has been made that it is Members of the opposition who have been keeping the argument going on this Bill. One after another hon. Member opposite has approached me in the Lobbies and in the corridors and said, "It is a most extraordinary thing, but every time I go into the Chamber and listen to the Committee they are debating points of substance, aren't they?" Indeed they are. I have one more I should like to ask the Chief Secretary about on this Schedule.
It arises in paragraph 5(c), where there is a reference to
shares or obligations of the company which are subjejct to any trust".
The word "trust" is left entirely at large. In these circumstances, it would seem that the provisions of the paragraph—it is a question of defining an "associate"—could extend to a large number of cases where there would not seem to be any conceivable reason why they should apply. In an earlier debate somebody raised the question of a trust for employees' shareholdings where there was no question of any directors benefiting. Yet they might well come in here, if the word "trust" is left at large and


undefined. So, indeed, might a trust for a dogs' home; if one of the trustees happened to be a participator he would come in. I cannot believe this is intended.
An Amendment we put down on this point to limit family trusts—

The Chairman: Order. The hon. Member cannot now, on this Question, "That this Schedule, as amended, be the Seventeenth Schedule to the Bill," propose Amendments to it.

Mr. Jenkin: I was not proposing Amendments, Dr. King. I was merely suggesting that an Amendment was inadequate to cover the point, and that that might well have been why the Amendment was not selected. But the point is that the word is undefined, and is altogether too sweeping, and I hope that the Chief Secretary will be able to look at this again before Report to see whether the thing can be defined rather more narrowly to catch those cases which, on both sides of the Committee, we are anxious should be brought into the net. These are anti-avoidance provisions. Family trusts can be used to avoid tax and, if they are, they should be caught, but they should not be caught where no question of avoidance arises.

Mr. Barber: I think that this is, perhaps, an occasion when we ought to give the Chief Secretary the last word. Listening to him moving, in his customary fashion, a succession of Government Amendments during the last few minutes, as time marched on, I thought—and I think I can speak on behalf of my hon. Friends in saying this—that the Chief Secretary really became more endearing every moment. Indeed, I heard one of my hon. Friends behind me refer to him as "Little Noddy". We are indeed making progress.
This Schedule of some nine pages really bristles with difficulties. There are innumerable questions which one could put to the Chief Secretary about them, but somehow, at this hour of the morning. I do not think it would be appropriate to deal with the matter in this way. There is, however, one general matter on which I think it would be helpful if the Chief Secretary felt he could make comment. It is a matter which arises under the existing Surtax legislation, although I

think it assumes greater importance now, because of the extended definition of close company. It is a simple point to present but a comment on it would be useful.
2.30 a.m.
What is the position of a company and its directors where the close company provisions operate to increase the liability of the company to Corporation Tax but the directors, acting in good faith and with all due diligence, have no knowledge of the facts which give rise to the increased tax liability?
May I illustrate the point? Liability to tax depends on the definition of a participator. A participator includes
any person who possesses or is entitled to acquire share capital or voting rights in the company".
How are the directors to know whether I have an option to acquire shares in the company? An associate is defined as meaning a
parent or remoter forebear, child or remoter issue"?
How are the directors to know the actions of those remoter relations? A company is
not to be treated as a close company where the control of it is in the hands of a company which is not a close company or of two or more companies none of which is a close company.
How are the directors to be sure of the status of the controlling companies? They may know, but they may well not know.
To a lesser degree these points—although not quite the same—have arisen under the old legislation. All I am saying is that we on these benches have received a number of letters from people which have arisen out of the fact that the Chancellor is extending the net, and therefore people have been asking some of my hon. Friends, and certainly myself, what is to happen in those cases where for such reasons the directors cannot be sure whether the company is a close company. I know that the notice is short, but the point is important, and I should be glad if the Chief Secretary would make some observations about it, because it is causing some concern.

Mr. Diamond: It is not expected that there will be any increased difficulty at all in dealing with the situation. There will be a certain amount of uncertainty


from time to time, as there has been in the past—not that it affects the efficient working of Surtax collection and all that goes with it. But there is nothing new in provisions of this sort. The right hon. Gentleman gave no specific example of what would happen and had not happened in the past, and I can think of no case—and I am thinking hard—in which there would be a different set of circumstances from the present position. We will gladly give the matter thought and see whether any situation which we had not taken into account might cause difficulty and uncertainty, which we are anxious to remove, but my first answer must be that the right hon. Gentleman found it possible to live with the present provision for a long time—and nobody had more direct contact with it and greater responsibility for it than he by virtue of his office in the last Government. I believe that we shall find, as he found, that there is no prticular difficulty in practice, but I will look into the matter carefully to see whether there is anything which we have not taken into account.
I give a similar reply to the hon. Member for Belfast, North (Mr. Stratton Mills). The point which he raised is technical and rather detailed. I will read it HANSARD what he said, and it will probably be a case of my writing a letter of explanation to him, although if anything further is required I will do it. The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) asked whether the definition had gone too wide. One has to have a definition. He thought that perhaps it had gone too wide and gave an example of a company where there was an employees' trust. This is a very good example of where, at first thought, it might be felt that the definition had gone too wide, but on closer consideration one realises that it has not done so.
In practice it is unlikely that the trustees of an employees' trust will have any real influence over the policy of that company, certainly nothing like the influence which those who are running the company have, and it is just this kind of situation therefore which ought to be included, not excluded as the hon. Gentleman thinks. I will see whether there is any other case where the definition has gone too wide, but the example which

the hon. Gentleman gave confirms the wisdom and draftsmanship of this provision, and not the reverse.
I hope that with those few words it might be found convenient to let us have the Schedule.

Mr. Barber: The only reason why I raised these questions was because they had been raised with me. They were never raised with me under the old legislation. They were raised as a result of the publication of the Bill, and I did not know the answers to them. With respect to the right hon. Gentleman, it is apparent that he does not know the answers either, and I hope therefore that he will, as he said, look into them, and perhaps he will be able to say something about them on some future occasion to allay the concern which undoubtedly is felt by people who have looked at these provisions closely.

Question put and agreed to.

Schedule 18 agreed to.

Clause 84.—(STAMP DUTY: CONVEYANCES AND TRANSFERS.)

Mr. MacDermot: I beg to move, Amendment No. 613, in page 115, line 29, at the end, to insert:
Provided that, in a case falling under the said paragraph (b), duty shall not be repayable if it appears to the Commissioners that the circumstances are such that a conveyance or transfer on the sale in question would have been chargeable with duty under section 74 of the Finance (1909–10) Act 1910 by virtue of subsection (5) of that section (conveyances and transfers on sale chargeable as voluntary dispositions if for inadequate consideration).
I think that it might be convenient if, with this Amendment, we discuss Amendment No. 614, in page 115, line 42, leave out from first "of" to "and" in line 43 and insert "the said section 74".

The Temporary Chairman (Mr. Thomas Steele): If the Committee wishes, so be it.

Mr. MacDermot: This Clause nullifies two devices for the avoidance of Stamp Duty on conveyances and transfers, and these two Amendments are designed to improve subsection (2) so as to ensure more effectively the closing of avoidance devices of the kind which the Clause is designed to prevent.
Briefly, subsection (1) deals with a property which is transferred in contemplation of a sale, and if the sale takes place for a consideration less than the value assessed, the duty on the difference is repayable under subsection (2, b). These provisions work all right for sales on a commercial basis, but not where the sale price is so low as to import an element of gift, and that is what the Amendments deal with.
Under Amendment No. 613, where duty is payable on the value of property transferred in contemplation of a sale, no return can be claimed on the ground that the actual sale price is lower than the value assessed if the price has been fixed at an artificially low figure in order to confer a benefit on the transferee. The second Amendment, No. 614, is a consequential drafting one.

Amendment agreed to.

Futher Amendment made: In page 115, line 42, leave out from first "of" to "and" in line 43 and insert "the said section 74".—[Mr. MacDermot.]

Mr. MacDermot: I beg to move Amendment No. 615, in page 116, to leave out lines 19 to 22, and to insert:
in a case where the whole of such property has been so re-conveyed or re-transferred, so far as it exceeds the stamp duty which would have been payable apart from this subsection and, in any other case, so far as it exceeds the stamp duty which would have been payable if the instrument had operated to convey or transfer only such property as is not so re-conveyed or re-transferred".
This is a similar Amendment to improve subsection (5) which is designed to prevent the value of a gift on which ad valorem Stamp Duty is being charged from being artificially diminished by a reservation of the power of revocation. Under the Amendment, it is only where the whole of the property is retransferred on the excise of the power of revocation that a return can be claimed of the duty paid in excess of the amount which would have been payable apart from the subsection. That is the modest amount of 10s.
Where only part of the property is retransferred the amount repayable, where a claim is duly made, is the excess of the duty paid over the duty which would have been payable if the original

transfer bad related only to the property which is not retransferred.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 85 ordered to stand part of the Bill.

Clause 86.—(GRANTS TOWARDS DUTY CHARGED ON BUS FUEL.)

Question proposed, That the Clause stand part of the Bill.

Mr. Geoffrey Wilson: I hesitate to delay the Committee at this time of the morning, but I do not think we should accept this Clause without some comment on the fact that the concession provided in it, for which bus operators are doubtless very grateful, does not appear to come up to what might have been expected. For a number of years all the bus operators, not merely the private enterprise ones or the owners of the B.E.T. group which is 50 per cent. privately owned and 50 per cent. publicly owned, but the municipal bus companies and London Transport also, have been complaining that the fuel tax was excessive, was having a bad effect on bus services and was leading to a spiral in which the price of tickets went up, and consequently more and more private cars were being used and there was more congestion iu the roads.
Bus operators were horrified when the present Chancellor added to the fuel tax rather than diminished it. They are very grateful for the concession, but the concession given is very limited in that it is only for stage carriages. The Committee will no doubt recollect that in the very recently published report of the holding company, in the section dealing with Scotland, it is pointed out that the small man who operates the private bus is a very essential part of the service in remote areas, and can probably do it better than others. He really has not benefited sufficiently by the rebate in this Clause as compared with the large operator, because the small bus operator maintains his service largely with the aid of express services which, of course, include tours, and also with contract services for school buses and so on.
I hope that perhaps this matter can be looked at again to see whether this concession which has been given for stage carriages cannot be somewhat extended to include express and contract carriages, because otherwise I do not think it will be of much benefit to the rural bus services, whether operated by individual owners or companies. It would be of great benefit to the bus industry generally if this concession could be extended.

The Joint Parliamentary Secretary to the Ministry of Transport (Mr. Stephen Swingler): I cannot go beyond what is said in the Clause. This Clause implements the Chancellor's pledge that the extra 6d. on fuel duty would not be imposed on bus operators. It is not being imposed on bus operators who run stage services, and that covers some 80 per cent of all bus operations in the country. It relieves them of about£5 million of the tax burden which otherwise they would have to bear. This is a concession which has not been given before. Hon. Members may say that it does not go far enough, but discussion of that matter would be out of order. Nevertheless, we have done something to relieve public transport of its tax burden, which has not been done previously. We are arriving at satisfactory arrangements with the bus operators for the repayment of duty. I hope, therefore, that the Clause will receive the unanimous support of the Committee.

Mr. Geoffrey Wilson: Can the hon. Gentleman explain what was meant by the reference to "borderline cases" in the debate in December?

Mr. Swingler: There are always borderline cases. We have had considerable discussions with the bus operators as to the way in which this can be clearly defined. It is clearly defined here. The concession is given to bus operators who run stage services—and that amounts to over 80 per cent. of all the bus operations in the country. We feel that those are the operators who should benefit from this concession, which is worth£5 million. It is a concession which has not previously been given to assist public transport. We therefore feel that the Clause fully implements my right hon. Friend's pledge.

2.45 a.m.

Mr. Scott-Hopkins: I support what has been said by my hon. Friend the Member for Truro (Mr. Geoffrey Wilson), who said that in rural areas this concession is not sufficient. Events have overtaken it. I hope, therefore, that the Parliamentary Secretary will reconsider this proposal before Report. When the concession was made it was acceptable to the bus companies, but there have been rises in costs and therefore a greater concession is needed. This is due entirely to the policies of the right hon. Gentleman the Chancellor. I hope that this question will be reconsidered before Report.
Secondly, in subsection (1) complete discretion is given to the Minister of Transport; he can impose certain conditions when giving this concession to the statutory bus operators. These provisions are solely within the right hon. Gentleman's discretion. If a bus operator fails to comply with these conditions he becomes liable to an onerous fine, which may amount to£100. Will the Committee be able to debate what these conditions will be? If not, I hope that the Parliamentary Secretary will reconsider the terms of the subsection, to see whether it is possible to insert something to enable the Committee or the House to discuss these conditions. Even the Treasury seems to have no control over these conditions, although, according to subsection (2), the Treasury must be consulted before the method of paying the grant is arrived at.
These conditions might gravely affect bus operators. I hope that the Committee will agree that they may have a considerable bearing on a man's livelihood, especially if he does not comply with them. Basically, I agree with my hon. Friend the Member for Truro. I am glad that we have discussed the Clause. It does not go far enough, and I hope that the Government will have second thoughts about it.

Mr. Swingler: I am surprised that the hon. Member, who did nothing for rural bus operators when he was a member of the Government, should complain that we are not doing enough. We are making a start to relieve them of their tax burden. The Clause authorises my right hon. Friend to negotiate with the bus operators


about the payment of this concession. He is arriving at satisfactory arrangements with the operators for this purpose. Any hon. Member can question my right hon. Friend about the nature of the agreements, but I can tell the Committee that they are in the interests of the bus operators. The arrangements must be made in a flexible way so that they will be acceptable to the small operators and the very large concerns.
Our negotiations we think have been satisfactory up to now, but we will report to the House what the outcome is. At the moment, hon. Members know from this Clause that we intend to repay the 6d. increase in the fuel tax.

Mr. Peter Bessell: This Clause will be received with some degree of disappointment on the part of some operators. I am as disappointed as the hon. Member for Cornwall, North (Mr. Scott-Hopkins) and the hon. Member for Truro (Mr. Geoffrey Wilson) with the reply which we have had. The Parliamentary Secretary has said that the benefit will apply to 80 per cent. of all operators, but it is the remaining 20 per cent. who have the greatest difficulties in terms of economics.
Like the hon. Member for Truro, I am concerned for the small operator in rural areas. There may not be a very large number of them, but they perform an extremely useful service and rely for a lot of their business on the special outing type of hiring; that type of facility which is so very important in scattered areas and which includes school services, old age pensioners' outings, girl guide and boy scout outings, and so on. Such activities are of very special importance where populations are small and scattered and people have consequently to travel long distances for recreation and entertainment.
The fuel tax increase imposed last year has been a matter of serious concern to the small bus operators, but there is also the other side to be considered. It has had its effect on those people who have been forced to pay the increased charges in terms of higher fares and I ask that our case should be given much more close and careful attention. The need is urgent.

Mr. Scott-Hopkins: I am glad that the Parliamentary Secretary mentioned the conditions, because subsections (3), (4) and (5) show that the conditions are very onerous. If the contractor does not agree with the conditions, it is no use the Parliamentary Secretary saying that we should put down a Question in order to see what they are, because we have it here that if the operator fails to comply with some of the conditions he will be liable on summary conviction to a fine of£100, or three months' imprisonment and on indictment to as much as two years' imprisonment. This is no light matter. These are very considerable penalties and a burden on the small operators.
The Parliamentary Secretary has said that the agreements must be flexible, but where we are dealing with conditions where the burden is so great and the punishment is so severe, then it is surely only right that the House should hear at a later stage what are the conditions. They could be tabled by way of the negative procedure so that hon. Members could examine what are the conditions under which these hard-working people will have to operate. I ask the Parliamentary Secretary, even at this late hour, to see if he cannot bring forward something before Report stage which will satisfy the operators who will have to labour under this Clause so that we may know what are the conditions to which they will be subjected.

Mr. Swingler: This is in the interests of the bus operators themselves. In order to be able to claim their concession, they must give to my right hon. Friend information about their mileage, petrol consumption and so on. There may be some differences in the records which are kept. The reason, therefore, that all these things are not specified is so that my right hon. Friend may be able to negotiate with the bus operators—whether big or small—flexible arrangements to gain the information on which to assess their entitlement to concession. When I referred to the opportunity of hon. Members to ask Questions of my right hon. Friend, I was referring to the arrangements which my right hon. Friend has been negotiating with the bus operators. If it were a question of making regulations, we should have to lay down rigid standards for all types of operators. We do not wish


to do that, because of the differences and variations in conditions.
We hope, therefore, that the Committee will approve the authority of my right hon. Friend to make the most flexible arrangements in the interests of the bus operators themselves.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 87.—(GRANTS TO HOUSING ASSOCIATIONS FOR AFFORDING RELIEF FROM TAX.)

Question proposed, That the Clause stand part of the Bill.

Mr. F. V. Corfield: However desirable the object of this Clause—and I think that most of us welcome the provision of some relief from taxation for certain housing associations—it seems a very odd way of going about it. I would suggest that we are entitled to some explanation why this means has been adopted by the Government. The difficulties facing housing associations providing houses to rent—as opposed to co-ownership associations—from a tax point of view have been well set out in the Milner Holland Report, pages 33 and 34, and I do not propose to repeat them tonight. As I understand it, the main problem arises because, when housing associations borrow on an annual repayment basis, they are not entitled to put down the repayment of capital as an expense for Income Tax purposes. As a result, the rents which they have to raise have to be inflated very substantially, particularly towards the end of the loan, in order to cover the taxation on these repayments.
The other item which causes difficulty is the fact that revenue placed to reserve for future repairs is held subject to tax at the time that it is placed to reserve, and, for a housing association, this again can be a very heavy additional item to raise from rent. It would seem perfectly easy for provision to be made in the Bill whereby these items can be made quite clearly not subject to tax. Instead of that, we have this remarkable approach, in which a purely permissive, discretionary power is given, not even to one Minister, but to three Ministers, to decide whether or not they should give the grant

back to the housing association in relation to its tax.
This is a very wide discretion. In subsection (2) of the Clause, it is made clear that:
Any grant…shall be of such amount, shall be made at such times and in such manner and shall be subject to such conditions as the Minister thinks fit…
I suggest to the Government, in the first place, that this is a most undesirable way in which to frame a taxation Statute. Surely, the subject is entitled to know his taxation liability, and to have provisions by which that tax liability can be ascertainable. Secondly, I would suggest that, if this is the only way, it surely ought to be one Minister for the whole country, and he ought to be a Treasury Minister.
I hope that we shall be told why it is necessary to do it in this way. I also hope that the Government would try to make this Clause very much more specific, so that the taxation position of housing associations is made clear.
In conclusion, I remind the Parliamentary Secretary that Milner Holland made other comments on the taxation system and the very disadvantageous position of the private landlord in this connection. I hope that the Government, if they really want to contribute something to the solution of the housing problem this year, will not neglect this either.

3.0 a.m.

Mr. Temple: The Committee welcomes the help which the Clause will give to housing associations. Nevertheless, it is an extraordinary Clause, by any standards. What precedent has guided the Government in giving the Minister of Housing all sorts of powers under various subsections to give this relief? As my hon. Friend the Member for Gloucestershire, South (Mr. Corfield) said, it would have been more appropriate for a Treasury Minister to be chosen. I had thought, indeed, that it would have been even more appropriate if the Inland Revenue had been made the arbiter in these instances. Different Ministers have been chosen for different parts of the country, and I cannot think that the Ministers chosen will be the best fitted to judge the taxation angle involved here.
Why is there no appeal procedure under the Clause? The Minister of


Housing in England and Wales is to have power to call for any particulars he may reasonably require, and any grant is to be subject to such conditions as he thinks fit. The Minister is gathering to himself almost unwarrantable powers in order to administer the Clause. I think that he will find it unfortunate to be saddled with the duty of being both judge and jury in these cases.

The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. Robert Mellish): We are grateful for the general welcome accorded to the Clause by the hon. Members for Gloucestershire, South (Mr. Corfield) and for the City of Chester (Mr. Temple), who will know that the housing associations have already told us that they are well satisfied with the important step which my right hon. Friend has taken. As the hon. Member for Gloucestershire, South said, the Milner Holland Committee reminded us all of the anomaly that housing associations of this kind, non-profit making bodies, were subject to tax. My right hon. Friend took note of this when framing his Budget and made provision to give them relief.
Hon. Members who have spoken do not complain about this; they complain about the way it is done, and they ask why the Clause provides for repaying the tax liability of the housing associations out of the Votes of the Housing Ministers instead of giving the associations a straight exemption from tax. A straight exemption would have had the advantage of avoiding the need to work out the tax liabilities of associations and it would, of course, lead to the same result in the end.
The first answer, however, is that the tax affairs of housing associations are normally quite straightforward and do not give rise to serious problems. The amount of work involved in calculating their liabilities is very small, and no burden is imposed on them on that account. But the main point is that, on taxation principles, there is no case for exempting housing associations. Although they are referred to as non-profit making, they do in fact make a profit in the tax sense. The principle which it is desired to preserve is that, wherever a profit emerges, it should be taxed regardless of the argu-

ments which might be advanced on social grounds for some assistance from the State. We believe that, if this principle were widely breached, there would be no end to the claims for tax exemption on some ground or other for this or that body.
In our view, there is a special case here on social grounds for assisting the non-profit making housing associations to play a proper part in the provision of houses to let, and the Chancellor has taken the view that the right way to do it is by way of grant. It falls to the Housing Ministries to make this grant.
I give the assurance that we have consulted the housing associations. They are quite satisfied with this arrangement. At the end of the day, we shall have done what Milner Holland set out to do, that is, to remove an anomaly under which these people have suffered. I would tell the hon. Member for Gloucestershire, South that I think that the part which they will play in housing in the future throughout the country is a considerable one, and we want to encourage them in the best way we can.

Mr. Temple: I am afraid that the Joint Parliamentary Secretary has not answered the questions put to him, certainly those put by me. There was no answer about the precedents for these grants, about the appeal procedure and about why the Minister of Housing was chosen rather than a Treasury Minister. I hope that the hon. Gentleman will reply to those questions.

Mr. Mellish: I do not know the answer to the question about precedents, and it is no good my pretending that I do. I wish the hon. Gentleman had given me notice, for I would then have done some research and given him the answer. All I can say is that it is a general principle which is widely welcomed by the housing associations and everybody else concerned. I ask the hon. Gentleman to accept it in this spirit.
The hon. Gentleman also talked about the position regarding grants. Let us see how the method works. If there are anomalies, future legislation can deal with them. I can only say that we think that we have met the point which arises.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clauses 88 and 89 ordered to stand part of the Bill.

Clause 90.—(SHORT TITLE, CONSTRUCTION, EXTENT AND REPEAL.)

Mr. George Y. Mackie: I beg to move Amendment No. 678, in page 120, line 33, at the end to add:
(6) No provision of this Act, however worded, which provides for any matter to be determined or decided at the discretion or to the satisfaction of an inspector or of the Board or otherwise as an inspector or the Board shall determine or think fit shall be construed as limiting or excluding any right of appeal.
I shall not take long because I know how keen right hon. and hon. Gentlemen opposite are to get stuck into the 63 new Clauses, which I am sure are to follow this at once. We have had a great many points raised in the Bill. We have had a large number of Amendments moved by the Government and a large number of new principles established. From the number of Amendments which have been moved already I would imagine that the hon. and learned Gentleman must be very willing to accept this Amendment which provides for a right of appeal in very wide terms in case something else has gone wrong with the Bill apart from the many points which have already been put right by various Amendments. I am sure that at this hour of the night the hon. and learned Gentleman will want to accept the Amendment and add it to the Clause.

Mr. MacDermot: In brief, the Amendment proposes that where any provision of the Bill provides for a matter to be determined at the discretion or to the satisfaction of the inspector of taxes or the Board the taxpayer shall always have a right of appeal. I do not think that the case is made out. There are a number of discretionary matters here, some of which, as it appears to me on considering them, are not matters where there is any call for a right of appeal or where anything would be gained in practice by it. Others of them are matters where there is a de facto right of appeal as a result of the power of the taxpayer to appeal against the relevant assessment.
There are some matters in connection with the Corporation Tax in respect of which my right hon. Friend the Chief Secretary has said that he will look further into the provisions, and in doing that

he will consider the question of the right of appeal.
In view of that it would be premature for us to try to say now, in connection with the Corporation Tax provisions, that there should always be the right of appeal. It is a matter we can consider in connection with the review my right hon. Friend is making. As far as the provisions of the Capital Gains Tax are concerned, I am satisfied that there is no need for a provision of this kind. In these circumstances, I would advise the Committee not to accept the Amendment.

Mr. Barber: In view of what the Financial Secretary has said, I hope that the hon. Member for Caithness and Sutherland (Mr. George Y. Mackie) will not lead his party into the Division Lobby on the Amendment.

Amendment negatived.

Clause ordered to stand part of the Bill.

The Chancellor of the Exchequer (Mr. James Callaghan): I beg to move,
That the Chairman do report Progress and ask leave to sit again.
I think that this will come as a great shock of surprise to my right hon. Friend the Member for Easington (Mr. Shinwell) who clearly is most anxious that we should continue. His sprightly vigour seems more youthful than ever since he became a Companion of Honour. What will happen when he becomes an O.M. I do not like to think. I hope that I shall have the benefit of enjoying his determination to outdo us all this evening when I have spent as many years in this House as he has.
This is an appropriate moment to report Progress. The Committee as a whole has made exceedingly good progress today, with co-operation from everyone. There may be one or two spots on the face but, broadly speaking, that is a true verdict on the work the Committee has done. It has got through a great deal and we should, therefore, leave the new Clauses until tomorrow. It will be rather attractive a proposition to come here without the Bill and consider the new Clauses and new topics.

Mr. Heath: I support the Motion and I agree that the Committee has made considerable progress. We have covered 11 Clauses, 8 Schedules and 35 pages of


Amendments. The Chancellor will agree that the Committee has been greatly helped by two things: first, no hon. Member, as far as we can recall, has contributed from the benches opposite to our many hours of discussion; secondly, he himself, chastened after his lession, has quite rightly pursued a policy of constant capitulation and this has also greatly helped the process of the Bill.
For these reasons, we have made good progress and he is right to rise tonight at an early hour in view of the considerable amount of work we shall have tomorrow.

Question put and agreed to.

Committee report Progress; to sit again this day.

CRIME PREVENTION AND DETECTION, LIVERPOOL

Motion made, and Question proposed, That this House do now adjourn.—[Mr. O'Malley.]

3.14 a.m.

Mr. John Tilney: I count myself lucky, even at this unusual hour, to have been fortunate in the ballot so that I can call attention to Liverpool's method of crime prevention and detection. Liverpool is well known for many things and some people. Her police authority is already famous for the use of juvenile liaison officers. This has been copied by many other authorities and in many parts of the world. I suggest to the Under-Secretary—and I am grateful to him for coming to the House at this hour—that police authorities in other cities might copy the new method of crime detection initiated by the police authority in my city whereby crime in the last months has been greatly reduced and detection increased.
One should bear in mind that during 1964 the total of crimes in Liverpool was the high figure of 35,341, an increase of 4,592 over 1963, or 14·9 per cent. Excluding minor crimes, the remaining total of 30,307 was the highest ever recorded in Liverpool being an increase of 3,523 or 13·2 per cent. on the total for 1963. That was exceeded only in London. Moreover, the percentage of crime detected was only 31·3 per cent., a reduction of 0·5 per cent. of the crimes detected in 1963.
The House may think it odd to call attention to these figures, but I want to emphasise that the crime rate was going up and detection was dropping. However, on 12th November of last year cameras, both roving and static, were installed high up on buildings in various parts of the city. Few people know where they are. I have been privileged to watch the television screens of some of them. Some have remote control and zoom lenses so that one can get a good image of people or vehicles a long way away. I should like to pay tribute to Mr. H. R. Balmer who, when he became Acting Chief Constable, was responsible for this innovation, and I should like to pay tribute also to the anti-crime commandos who work so well with this new equipment.
The effect has been quite remarkable. For the first five months of this year, all crime has dropped from 13,223 in 1964 to 10,696, a decrease of 2,527 or 19·1 per cent. Breaking offences have gone down from 4,700 to 3,808, a decrease of 892 or 19 per cent. The number of thefts from unattended vehicles shows a decrease of 1,142 from 2,864 to 1,722, a drop of 40 per cent., while larceny of vehicles is down by 25 per cent.
In the A Division, which is in the centre of the city, there were about 130 to 150 thefts from vehicles each week in the past. There are now about 20 to 25. Thefts of vehicles are down from about 45 or 50 a week to only about 18. In this division break-ins have dropped by 35 per cent. and, moreover, the detection rate has gone up from 29·1 per cent. to 43·2 per cent. for the first five months of the year.
There are several points to remember. First, the Liverpool police force is 550 short of its establishment of 2,680. It lost no fewer than 120 men last year. If we cannot have traffic police with a lower physique than the other constables who have other duties, it seems all the more important to be able to make the maximum use of modern apparatus.
Secondly, the cameras are only part of crime detection. They would be useless without the anti-crime commandoes who are policemen and women in plain clothes. This type of commando is in contact, either by car or more probably by hidden portable radio, with whoever


is watering the screen on the roving eye. Thirdly, no member of the public can easily see a camera on a building whereas a policeman with high-powered binoculars can be hidden only with difficulty. The camera, by remote control, can often scan an area of 360 degrees. Its picture, or pictures from several different cameras, can be watched in comfort in a room hidden from the public view or knowledge.
Fourthly, cameras can be moved about easily. As a crime area changes so can the cameras. Even if some people know the numbers of the cameras that are operating and their sites, dummies can be left so that no one knows whether or not he or she is being watched. My fifth point is that people other than regular policemen can watch these screens, thus saving much labour. This enables the police to do their proper job. A detective constable in Lime Street, in Liverpool, because of the installation of these cameras was able to detect 21 crimes in one week instead of his average of three in the past. Twenty-one in a week against 150 in a year is a good advance. Sixthly, cameras can often see from above when a man on the ground is prevented from seeing by a screen of cars or a fence.
The Liverpool police have also taken the initiative under the Magistrates' Courts Act, of 1963. They are now very much more lenient on the small offences, such as drunkenness. This used to use five and a quarter hours of a policeman's time per drunk, through the policeman having to attend court. Most of the drunks now plead guilty by post. The police take the drunk to a place of safety and release him when he is sober. Subsequent proceedings are taken by post, so that much time is saved by all concerned.
The innovation of the camera has had a remarkable psychological effect on the potential criminal. The House would think it is somewhat symptomatic of 1984 and that Big Brother is really looking at one, but I am glad to say that the police have had no complaint from Liverpool citizens, up till now.
I cannot see any difference between this and a documentary film. Personally, I should have no complaint at all of a

photographic record being kept of all suspicious actions seen on the screens which were then followed up by the commandos. In many ways, such a record would be more accurate than the evidence from radar screens used for testing whether cars exceed the speed limit. Would not such cameras also reduce larceny in major stores? I also would have no objection to the use by the police of infra-red searchlights, perfected by the Dutch, though not in use at present, at any rate by the police in Liverpool. I do not know whether they will think of using them in the future. These searchlights pierce the darkness enabling one to see into an unlit street or room, as if it were daylight.
Providing no one is doing anything illegal, I do not see why anyone should object to the use of these searchlights. Something like the train robbery or the Post Office van hold-up may shortly happen in Liverpool, but there has been enough time to weigh up the advantages of this Liverpool experiment. Police in other cities should be supplied with more radios and more cameras allied with plain clothes police commandos. The Minister will agree that we want the crime wave abated, and I hope that he will say that Liverpool has shown the way to do it.

3.25 a.m.

The Joint Under-Secretary of State for the Home Department (Mr. George Thomas): I congratulate the hon. Member for Liverpool, Wavertree (Mr. Tilney) on the initiative which he has shown in bringing to the attention of the House the experiment under way at Liverpool. The country is accustomed to Liverpool people being proud of its achievements, and in many fields Liverpool leads the way. I congratulate the hon. Gentleman also on the detailed information which he has obtained from the police. I in no way question his figures because they were the figures supplied by the police to the Home Office today. Obviously he has been very well briefed.
No one can be under any illusion about the need for rapid and constructive thought being given to combating the rising figures of crime in this country. All of us are concerned at the ugly increase in crime throughout our land. My right hon. and learned Friend the


Home Secretary very much welcomes the initiative which Liverpool has shown. Police forces in many parts of the country are experimenting with other new methods and ways of combating crime and they have shown considerably increased interest in what is happening in Liverpool. They have been visiting Liverpool and watching the experiment there.
As far as I know, the Liverpool police force is the only force which is using closed circuit television in town work. The Liverpool experiment began on 16th November, 1964, after a survey of crime problems in the city. Briefly, it consists in the combined use of plain clothes patrols and closed circuit television, and I understand that the Press has nicknamed the plain clothes patrols as commandos, an honourable name to which no one takes exception.
The hon. Gentleman may be assured that throughout the land police forces are not reluctant to embark on experiments. I in no way seek to detract from the initiative which Liverpool has shown, but it is as well to remind the House that the police force of Bolton has pioneered research into beat patrols. The police forces of Shropshire, Hampshire and the City of London have always been well ahead in the organisation of crime prevention. Recently, I paid a visit to the Carmarthenshire and Cardiganshire Police Force and was tremendously impressed with its keenness about crime prevention. It was almost greater than its keenness about crime detection, because if we can prevent crime, so much the better. I recently visited also the Bedfordshire County Police and found the same keen enthusiasm about various techniques in crime prevention. We are, therefore, making a careful survey of the new methods that are under way throughout the country. New ideas are percolating through the police forces as they are determined to get on top of the crime wave.
Members of the Home Office Police Research and Planning Branch have visited Liverpool and they are at present engaged in studying statistics provided by the Liverpool force at our request. It is right, therefore, that the Liverpool experiments should be fitted into the general pattern of research which

was established when the Home Office Police Research and Planning Branch was set up in August, 1963, in broad accordance with the recommendations of the Royal Commission on the Police.
The branch was directed to pay particular and urgent attention to the problem of serious and unsolved crime. Ever since the research branch has been collecting and observing evidence of new methods all over the country. We have never intended that local initiative and local experiments should be checked because we have established a Research and Planning Branch here in the metropolitan centre.
It has always been a valuable tradition of our police forces that they have not been afraid to experiment with new methods and I hope that this will continue. It is, however, equally right, and I am sure that the hon. Member will agree, that there should be co-ordination at the centre to see that there is no overlapping between different experiments in different forces and that the benefit of each experiment is carefully analysed and made known to every other force.
The regional crime squads, 600 officers strong, were set up in April this year as a mobile force to combat the mobile criminal. Work is going on centrally and with local co-operation, first, upon the policing of motorways, an experiment in which closed-circuit television was again used; secondly, upon the potentialities of using computer techniques in police work; and thirdly, upon many other urgent problems of organisation and technique which the hon. Member will not expect me to go into in detail now.
I do not quote this central work to belittle local experiment—far from it; we welcome it—but to show the background against which local experiments such as those in Liverpool fit in and to emphasise that although the establishment of a central research body can already be seen to be paying dividends, there is also room for local initiative and experiment.
As to the final results of the Liverpool experiment, I hope that the hon. Member—who is also my hon. Friend, since we are so few in the House—will forgive me if I do not try to weigh up all the results just now. More time must elapse before a considered judgment can be


given. Liverpool itself is not sure yet whether the reduction is due to the television or to the extra patrols or to the publicity. There are various factors that must be weighed in the balance. Of this there is no doubt: that in the first few months of this year there has been a substantial reduction in crime and an increase in detection as compared with last year. I should like to express the thanks of the Home Office to the Press for their co-operation in this matter and to the television and radio authorities, because they have all helped the police in this experiment.
One of the questions to which special attention is being given is the extent to which the reduction of crime, which we welcome, in Liverpool has been due to the manpower question or to television or publicity. I will not burden the House with figures. The hon. Gentleman has given them to us. It is important to know how far these initial results will continue even after the first shock effect has worn off. We all hope that they will continue. Indeed, I am very glad to say that the Liverpool force is cooperating with the Home Office in providing statistics which will enable this process of analysis of the results to be quickly completed, and I undertake to the hon. Gentleman and to the House that ally useful results will be quickly communicated to other police authorities throughout the land; but we must first sift and analyse, to be absolutely sure, before recommendations or advice are given.
The House will realise that the police service as a whole is not lying down in the face of the current increase in crime. Once again, I know that the House will join with me in expressing the gratitude which we feel to our police forces all over the land for undertaking a difficult job on behalf of the rest of the community, and going it with a good spirit and a sense of high values. A great deal of guidance has already been issued by my right hon. and learned Friend to the police authorities and the police forces of the country as a result of experiments already completed. It would surprise the British public if they knew how many experiments are under way in an effort to combat crime, and all of us must hope that from the great number of experiments now going on, both centrally

and locally, my right hon. and learned Friend will be enabled soon to issue useful guidance to the police forces of the country. We are indebted to forces like that of Liverpool who are showing determination not to be behind the times in trying out new experiments.
The hon. Gentleman rightly paid tribute to the Acting Chief Constable. As the hon. Gentleman knows, Mr. Haughton, Assistant Chief Constable of Staffordshire, who has for the past two years been head of the Home Office Police Research and Planning Branch, has been appointed Chief Constable of Liverpool, and will, I understand, be taking over his duties on 1st August. I believe that this will result in even closer co-operation between Liverpool and the central research branch, and that the House can be confident that the lessons which emerge from the Liverpool experiments will be made available to other forces.
The hon. Gentleman told us that there have been no complaints from the Liverpool public about the use of television. I could understand, and so could he, the anxiety of some people about being watched as they go about the streets; we do not want every street in Britain to be under the television eye—but it will not be. I think that the people of Liverpool must feel a deep sense of gratitude that crime is being reduced and the liberty of law-abiding people is being increased and more greatly protected.
It was a very useful suggestion which the hon. Gentleman made—about infrared, did he say?—

Mr. Tilney: Infra-red searchlights.

Mr. Thomas: —about infra-red searchlights, which might be used in stores and dark places. I am quite sure that that is a suggestion which will be studied with great care.
I welcome the opportunity, not only of replying to the hon. Gentleman, and paying my tribute to a great police force in a great city, but also of reminding the House that every day and every night we are all in debt to the men in the police forces who are willing to risk much to ensure the security of us all.

Question put and agreed to.

Adjourned accordingly at twenty minutes to Four o'clock a.m.